Of Laws, Loopholes and the Looming Levy
By Gajanan Khergamker
The recent stir around the U.S. Congress’ move—under the ambit of the “One Big Beautiful Bill” (OBBB)—to impose a 3.5 per cent tax on remittances sent abroad by non-citizens has, predictably, triggered ripples across economic corridors in India and other remittance-dependent economies. But beyond the headlines and hyperbole lies a quieter, more pressing question: Does this move withstand the scrutiny of the U.S. Constitution?
On paper, the tax sails smoothly through the Taxing and Spending Clause of Article I, Section 8, Clause 1, which empowers Congress to levy taxes in pursuit of the nation’s “general welfare.” Now, as broad and subjective as that phrase may be, jurisprudence—stretching from United States v. Butler to Helvering v. Davis—has historically given Congress wide latitude in determining what qualifies as “general welfare.” If the rationale hinges on curbing undocumented immigration or tightening fiscal accountability, courts are unlikely to cry foul—so long as the tax is uniform across the states.
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Enter the Sixteenth Amendment, which legalised the federal income tax and removed the need for apportionment among states. While the remittance tax is not on income per se, but rather on the act of sending funds abroad, it exists within a taxation framework that has, time and again, leaned in favour of Congressional prerogative.
The question, however, is not one of existence but of execution. The minute the law selectively targets non-citizens—read: immigrants, temporary workers, Green Card holders or undocumented residents—there’s an issue of discriminatory classification. And here, the Fifth Amendment’s Due Process Clause, combined with Equal Protection principles applied via the Fourteenth Amendment, become crucial.
Unlike a blanket excise on financial transactions, this tax is narrowly tailored to remittances by non-citizens. That’s a red flag. Historically, while the U.S. legal system has tolerated different treatment of citizens and non-citizens in immigration or voting rights, the same cannot be said for taxation without a legitimate and compelling state interest. It’s one thing to tax wire transfers above a threshold amount to prevent money laundering—it’s quite another to ring-fence an entire class of people, defined not by economic capacity but by citizenship status.
Any such classification must pass the “rational basis” test, and in rare cases involving fundamental rights or suspect classifications, the “strict scrutiny” test. While citizenship is not a suspect classification per se in taxation, a law that disproportionately burdens non-citizens without clear economic justification may be viewed as arbitrary, if not outright xenophobic.
In similar vein, Harvard University—the academic behemoth recently found itself in the crosshairs of a policy backlash. The Trump-led administration, in a move widely criticised as politically motivated, sought to revoke Harvard’s Student and Exchange Visitor Program (SEVP) certification. The fallout was swift: Harvard sued the government, alleging infringement of academic autonomy and political retaliation.
This move, while ostensibly unrelated, shares eerie parallels with the remittance tax. Both disproportionately target non-citizens—foreign students in one case, immigrant workers and residents in the other. And both are cloaked under the guise of “national interest,” only to be unveiled later as vehicles for exclusion and executive excess.
The Harvard case, now under judicial scrutiny, raises pertinent questions about executive overreach and the curtailment of academic freedoms. That a revered institution was dragged into a legal battle for resisting federal interference in student mobility sends a sobering message: In today’s America, even the Ivy League isn't immune to the politics of exclusion.
What further muddies the waters is the political symbolism of the bill—crafted under Trump’s stewardship, it mirrors an increasingly nativist tilt to U.S. policy-making. The irony is palpable: The same Indian-American diaspora that has become a cornerstone of U.S. innovation and taxation compliance is now being asked to pay a “fee” for sending money back home.
If that’s not regressive taxation, what is?
Moreover, critics argue that the tax risks rerouting remittance flows underground. By disincentivising official channels, it undermines the very financial integrity that such a law claims to protect. It’s reminiscent of prohibition laws that unwittingly fuel the rise of bootlegging, except this time it’s cryptocurrencies and hawala networks waiting in the wings.
Add to this the concern now brewing among Indian parents and students, as voiced in recent reports from Pune and New Delhi, who see in these moves an erosion of the American Dream. The signal is loud and clear: You may come, you may work, you may study—but your welcome, much like your visa status, is provisional.
Legally, the tax could survive a constitutional challenge if and only if it is shown to be rationally related to a legitimate governmental purpose, such as national security, reducing illicit outflows, or funding border control. But the selective targeting of non-citizens, when citizens engaging in identical transactions are spared, presents a legal vulnerability.
It’s this selective application—not the tax itself—that could become its undoing in a judicial review. Courts in the U.S. are loath to intervene in fiscal matters unless there is clear evidence of arbitrariness or animus. If immigrant groups or civil liberty advocates can demonstrate that the remittance tax is motivated by animus or disproportionately affects certain ethnic groups (as Indian-Americans claim), then Washington may have a lawsuit on its hands.
In its current form, the remittance tax walks a constitutional tightrope. On one side is Congress’ near-absolute authority to tax; on the other is the foundational principle that laws—especially fiscal laws—must apply with fairness and without prejudice. The OBBB may have passed the House and may well breeze through the Senate, but its real test lies ahead—not in political corridors, but in courtrooms where constitutional fidelity is not negotiable.
And if precedent is any guide, the American judiciary, though deferential to legislative power, is rarely blind to systemic discrimination—especially when it’s garbed as economic reform.
This, in reality, isn’t just about a 3.5 per cent tax or a cancelled student certification. It’s about the slippery slope of policymaking that taxes identity, impairs intellect, and treats inclusion as an afterthought.
And that, in any democracy—least of all one that once sold itself as the land of opportunity—should be cause for concern.
