A potential tax on remittances

Summary

Marketplace Morning Report: A Potential Tax on Remittances
Release Date: May 14, 2025
Host: David Brancaccio

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1. Stock Market Stabilizes Amid Policy Uncertainty

Overview:
The episode opens with a brief update on the stock market, where the S&P 500 index has shown marginal growth since the beginning of the year. Despite being up for the year, the increase is less than 1%, leaving many investors wanting more.

Key Points:

• The S&P 500 is up by 8/10 of 1% since New Year's, indicating a stagnant performance.
• Susan Schmidt, Portfolio Manager at Exchange Capital Resources, highlights that compared to previous years, the market's current flatness offers only a reprieve from recent downturns but lacks significant growth.

Notable Quotes:

• Susan Schmidt [01:28]: "If we compare this to previous years, we were doing much, much better by May. So the fact that it's flat is really just a reprieve from where we've been."
• Susan Schmidt [02:19]: "We're still just flat. There's a long way to go for the year to match previous year's returns, and it's still a very uncertain environment as we roll forward."

Analysis:
David Brancaccio and Susan Schmidt discuss how ongoing policy uncertainty is hindering businesses from making critical investment decisions. The lack of clear direction makes it challenging for companies to plan staffing and other strategic initiatives, contributing to the flat performance of the stock market.

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2. Proposed 5% Tax on International Remittances

Overview:
A significant portion of the episode delves into a new tax proposal under consideration by the U.S. House of Representatives. The proposal suggests imposing a 5% tax on remittances—money sent overseas by individuals to support family and friends.

Key Points:

• The tax targets electronic transfers that support overseas families, potentially affecting $93 billion sent in 2023.
• Exceptions are proposed for most international money transfers made by U.S. citizens.
• Experts warn that such a tax could drive remittances underground, creating a black market.

Notable Quotes:

• Jose Ivan Rodriguez Sanchez [03:50]: "It's going to be a black market. We know that if you have to send money for your relatives and they need that money, you will try to find ways to send $100 and not."
• Paul M. Valer [03:35]: "Money goes to help friends and family pay for basic needs like food and clothing, and it also funds entrepreneurial ventures."

Implications:

• Economic Impact: A 5% tax could reduce the amount of money available to families abroad, affecting basic needs and entrepreneurial activities.
• Behavioral Changes: Financial institutions may see a decline in international transfers, and individuals might resort to informal channels to bypass the tax.
• Legislative Response: Given the potential backlash from both the public and financial institutions, the tax may face significant opposition.

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3. Cryptocurrency's Integration with Traditional Finance

Overview:
The report highlights Coinbase's upcoming inclusion in the S&P 500 index, marking a significant milestone for the cryptocurrency industry. This integration signifies a deeper entanglement between crypto markets and traditional financial systems.

Key Points:

• Coinbase Joining S&P 500: Expected to increase Coinbase's visibility and ownership among investors.
• Stablecoins and Government Debt: Crypto firms heavily invest in U.S. Treasuries to back stablecoins, aiming to reduce cryptocurrency volatility.
• Risks Identified: Experts express concerns about the potential for a "crypto winter" to impact broader financial markets due to the substantial holdings in government debt.

Notable Quotes:

• Miguel de la Motta [06:08]: "Crypto firms are backing their currencies with what's widely viewed as a safe investment real live government debt."
• Eswar Prasad [07:27]: "Because the whole point of the original cryptocurrency bitcoin was to get away from reliance on traditional financial institutions, and this..."

Implications:

• Market Stability: The intertwining of crypto assets with government debt introduces new risks, as downturns in the crypto market could lead to broader financial instability.
• Regulatory Outlook: With a crypto-friendly administration, further integration between crypto and traditional finance is anticipated, potentially increasing both opportunities and vulnerabilities.

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4. Texas Legislation Impacting Renewable Energy

Overview:
The episode examines a recently passed bill in the Texas Senate that could impact the profitability and development of renewable energy projects within the state. The legislation mandates backup power generation for renewable energy sources.

Key Points:

• Bill Details: Requires renewable energy plants to have backup power sources, such as natural gas plants, increasing operational costs.
• Industry Response: Renewable energy consultants argue that the bill could lead to increased costs and potential retirements of renewable projects.
• Expert Opinions: University experts suggest that a systematic approach to backup power is necessary, rather than placing the burden solely on renewable companies.

Notable Quotes:

• Doug Lewin [09:17]: "Making wind and solar companies pay for their own backup generation hurts the industry."
• Ken Medlock [09:15]: "This bill is trying to build insurance."
• Ed Herz [09:35]: "While Texas needs to solve its firm power problem, it will not accomplish the goal by putting it all on renewable companies."

Implications:

• Economic Impact: Increased costs for renewable energy providers could slow down the growth of renewable projects in Texas.
• Energy Reliability: While the intention is to ensure more reliable power, the approach may inadvertently hinder the scalability and sustainability of renewable energy initiatives.
• Policy Debate: The legislation sparks a debate on the best methods to balance energy reliability with the growth of renewable resources.

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5. Insider Trading at Tesla

Overview:
Towards the end of the episode, David Brancaccio reports on significant insider trading activities involving Robin Denholm, the chair of Tesla's board, who has sold $198 million worth of Tesla stock in recent months.

Key Points:

• Sales Amidst Leadership Decisions: Denholm's stock sales occur while CEO Elon Musk is implementing strategies that may not align with investor interests.
• Market Reaction: The sales have raised concerns among Tesla investors, particularly in light of Musk's advice to employees to hold onto their stock.

Notable Quotes:

• David Brancaccio [09:49]: "Robin Denholm, made $198 million selling Tesla stock in recent months. This at a time the CEO she supervises, Elon Musk, was off cutting federal jobs and federal spending and rubbing many current and potential Tesla buyers the wrong way."

Implications:

• Investor Confidence: High-profile insider sales can negatively impact investor confidence, especially when they occur alongside controversial company decisions.
• Corporate Governance: Raises questions about the alignment of board members' interests with those of shareholders and employees.

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Closing Remarks

The episode of Marketplace Morning Report provides a comprehensive overview of current economic and business developments, including market performance, legislative proposals affecting international financial transfers, the evolving relationship between cryptocurrency and traditional finance, regulatory impacts on the renewable energy sector, and noteworthy insider trading within major corporations. Each segment is enriched with expert insights and critical analysis, offering listeners a nuanced understanding of the factors shaping today's economic landscape.

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Transcript Excerpts for Reference:

• Stock Market Discussion:

  • Susan Schmidt [01:28] and [02:19]

• Remittances Tax Proposal:

  • Stephanie Hughes [03:17], Paul M. Valer [03:35], Jose Ivan Rodriguez Sanchez [03:50]

• Cryptocurrency Integration:

  • Gil Luria [06:08], Miguel de la Motta [06:08], Eswar Prasad [07:27]

• Texas Renewable Energy Legislation:

  • Elizabeth Troval [08:48], Ken Medlock [09:15], Doug Lewin [09:17], Ed Herz [09:35]

• Tesla Insider Trading:

  • David Brancaccio [09:49]

Transcript

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[David Brancaccio]

Straight talk here. Federal funding for public media is at risk of being eliminated. That seriously affects our 800 local public radio stations that broadcast Marketplace and that in turn impacts our bottom line. Marketplace needs your help to plan for an uncertain future and to continue bringing you the news, interviews and stories about the economy as it changes. Every donation right now has a profound impact. Please give what you can@marketplace. And thank you. Send money overseas and pay an extra tax. I'm David Brancaccio in Los Angeles. First to a milestone of sorts for the stock market. We can tell you now that the Popular S&P 500 index is up for the year so far, but just slightly up 8/10 of 1% since New Year's. So not even 1%. It's middle of May here and many investors would have wanted better. Susan Schmidt is portfolio manager at Exchange Capital Resources.

[Susan Schmidt]

If we compare this to previous years, we were doing much, much better by May. So the fact that it's flat is really just a reprieve from where we've been. But if you count since January, it's not all that impressive.

[David Brancaccio]

I mean, what it's just continued policy uncertainty. Right. It's hard for businesses to plan. You really want to staff up or make other investment decisions if you're not sure just which way things go.

[Susan Schmidt]

That's right. And we continue to hear that from management teams who are out talking about that right now as they release earnings. Many of them are pulling guidance. This could all in just a couple of months or even next week.

[David Brancaccio]

I suppose you could look at it a different way. Right. We're up from the nadir, from the pit that was dug for stocks after the first big tariff announcements were made. Liberation Day. So there's been improvement. If you look at the kind of six week time frame, there has been.

[Susan Schmidt]

Improvement because we are up quite a bit. But remember that investors have a very short term horizon when they look at things. There's a euphoria that we've recovered from that. But back to your opening point. We're still just flat. There's a long way to go for the year to match previous year's returns, and it's still a very uncertain environment as we roll forward.

[David Brancaccio]

Susan Schmidt, portfolio manager at Exchange Capital Resources thank you, thank you. Now let's take a look at the vast tax proposal up for consideration in the U.S. house of Representatives. And thumbing in deep to page 327, just so you know, it proposes a 5% tax on money people send to family and friends overseas remittances. This is money sent electronically that often sustains the folks back home for many immigrant families. And there are exceptions, including exempting most international money transfers made by US citizens marketplaces Stephanie Hughes has more people in.

[Stephanie Hughes]

The US sent a total of $93 billion in remittances in 2023 to people in countries around the world, according to the World Bank. Paul M. Valer, a professor of law and business at the University of Minnesota, says that money goes to help friends and family pay for basic needs like food and clothing, and it also funds Entreprene Ventures.

[David Brancaccio]

They may use it to buy a pickup truck, and that pickup truck helps run the farm during the day, but then it becomes a taxi at night.

[Stephanie Hughes]

If a federal tax on remittances takes effect, it could drive those transactions underground, says Rice University research scholar Jose Ivan Rodriguez Sanchez.

[Jose Ivan Rodriguez Sanchez]

It's going to be a black market. We know that if you have to send money for your relatives and they need that money, you will try to find ways to send $100 and not.

[Stephanie Hughes]

A remittance tax is also not likely to get an enthusiastic response from financial institutions that are part of the legitimate market, according to the University of Minnesota's Paul Voller. If the tax goes through, banks and money transfer companies could see fewer transfers and fewer transaction fees. I'm Stephanie Hughes for Marketplace.

[Jose Ivan Rodriguez Sanchez]

Foreign.

[Daniel Ackerman]

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N Dry are luxuriously soft and ultra dry. How soft are we talking unbelievably soft? Irresistibly soft. Doesn't your baby deserve a diaper that's oh so gentle? On their tushy? Huggies Snug n Dry helps keep them comfy, cozy and protected. Experience the unexpected softness and up to 100% leak protection. More parents choose the new Huggy Snug n Dry softness versus the leading premium diaper Huggies. We got you, baby.

[David Brancaccio]

The cryptocurrency exchange Coinbase will join the rarefied club of the S&P 500 stock index next week. Since many investors buy the whole S and P, that would mean more would own Coinbase stock, which jumped nearly 15% on the news. A spot in the S and P is a first for a crypto company. And crypto's also beyond stocks. Let's talk about the bond market here. Daniel Ackerman has that One place where.

[Gil Luria]

Crypto world and the broader economy intersect is in government debt. Gil Luria is head of technology research at DA Davidson, and he says crypto companies hold a lot of it. They are very large buyers of U.S. treasuries. That's because some cryptocurrencies peg their value to the US Dollar. Currencies that peg to a reserve asset are called stablecoins, says Michael Jones, an economics professor at the University of Cincinnati. The reason those were introduced is to reduce the volatility in prices that you see with traditional cryptocurrencies like bitcoin reduce volatility but still offer many potential benefits of cryptocurrencies like instant settlement, programmability, censorship, resistance. And to keep stablecoins stable, crypto firms are backing their currencies with what's widely viewed as a safe investment real live government debt, says Miguel de la Motta, an analyst at S and P Global Ratings.

[David Brancaccio]

It seems to be something that would give institutional investors who they're trying to attract more comfort.

[Gil Luria]

Last year, the crypto firm Tether claims it bought more US treasuries than all but six other countries. The company holds around $100 billion worth of government debt, and there's something of an irony to all this, says Eswar Prasad, a professor of economics at Cornell University.

[Jose Ivan Rodriguez Sanchez]

Because the whole point of the original cryptocurrency bitcoin was to get away from reliance on traditional financial institutions, and this.

[Gil Luria]

Irony could come with some risk, Prasad says. Crypto markets were once isolated enough that if they crashed in a so called crypto winter, it didn't make much of a dent in the broader financial system.

[Jose Ivan Rodriguez Sanchez]

That is beginning to change the entanglements between crypto and traditional finance are increasing.

[Gil Luria]

Prasad says a future crypto winter could cause a sell off in treasury backed.

[Jose Ivan Rodriguez Sanchez]

Stablecoins which would then infect a lot of other financial markets. Because U.S. treasury securities are the benchmark for many financial products in the US.

[Gil Luria]

The crypto industry overall still holds just a tiny fraction of U.S. debt. But with a crypto friendly president in the White House, Prasad expects the connections between crypto and traditional finance to grow. I'm Daniel Ackerman for Marketplace, the state.

[David Brancaccio]

That generates the most renewable energy. Did you get it right? Texas. But a bill that has passed the Texas Senate could cut into the profits of renewable projects by requiring backup power generation. This comes as Texans require more power and want that electricity to be more reliable. Marketplaces Elizabeth Troval reports renewables have kept.

[Elizabeth Troval]

The AC running on hot Texas days, but one big problem remains. The wind doesn't always blow and the sun doesn't always shine.

[Gil Luria]

There need to be other resources available to the grid to effectively back them up.

[Elizabeth Troval]

Ken Medlock with Rice University says if this bill passes, it could incentivize the building of natural gas plants and other sources of steady or firm power that are pricier to build and run.

[Gil Luria]

This bill is trying to build insurance.

[Elizabeth Troval]

But Doug Lewin, a renewables consultant, says making wind and solar companies pay for their own backup generation hurts the industry.

[Gil Luria]

You would see a wave of renewable energy plant retirements.

[Elizabeth Troval]

And Ed Herz with University of Houston says while Texas needs to solve its.

[David Brancaccio]

Firm power problem, it will not accomplish the goal.

[Elizabeth Troval]

He says the state needs a systematic approach to paying for backup power. And putting it all on renewable companies isn't the answer. I'm Elizabeth Troval for Marketplace.

[David Brancaccio]

And the New York Times has crunched the data and found that the chair of electric car company Tesla's board, Robin Denholm, made $198 million selling Tesla stock in recent months. This at a time the CEO she supervises, Elon Musk, was off cutting federal jobs and federal spending and rubbing many current and potential Tesla buyers the wrong way in March. Musk's advice to Tesla employees had been hang on to your stock. I'm David Brancaccio, Marketplace Morning report from APM American Public Media.

[Susan Schmidt]

This old house has been America's most trusted source for all things DIY and home improvement for decades. And now we're on the radio and on demand.

[David Brancaccio]

I think you're breaking into this wall. Regardless. I was hoping you wouldn't say that. I need to go and get some whiskey.

[Elizabeth Troval]

I think I would get the whiskey for sure.

[Susan Schmidt]

Subscribe to this Old House Radio hour from LAS Studios. Wherever you get your podcasts.