From Yahoo Finance: 2025-05-30 14:29:00

Congress is considering a tax provision that could drive foreign investors away from US markets. The provision in question, Section 899, would increase tax rates on individuals and companies from countries with “discriminatory” tax policies, potentially leading to a decline in foreign investment and compliance behavior among foreign companies.

The Joint Committee on Taxation estimates that the provision could generate $116.3 billion in revenue over the next 10 years but could ultimately result in a $12.9 billion loss in annual US tax revenues by 2033 and 2034. The reduced profitability of foreign companies and lower demand for US investment could lead to a decline in US tax receipts and asset values.

While the market reaction to Section 899 has been muted so far, Trump’s policies, including the retaliatory tax plan, have impacted US assets. Long-term Treasury yields have risen, the US dollar has decreased in value, and Moody’s Ratings downgrade of the US government’s credit rating has contributed to a ‘Sell America’ trade.

Foreign investment in US long-term securities totals around $31 trillion, with foreign accounts holding about a third of the nearly $29 trillion in outstanding US Treasury debt. The provision in the One Big Beautiful Bill Act has raised concerns about deterring foreign investment in US assets, especially as the US relies on foreign capital to finance its growing debt.

House Ways and Means Committee Chair Jason Smith hopes the provision will serve as a deterrent to foreign governments and won’t need to be implemented. He views the provision as a way to retaliate against countries imposing digital services taxes on US companies like Meta Platforms Inc. and Alphabet Inc.’s Google, potentially sucking away billions of dollars from US businesses.

The Trump tax provision would raise the federal income tax rate on passive US income earned by investors and institutions from targeted countries, starting at 5 percentage points and increasing by an additional five points each year, potentially reaching a maximum of 20 points above the statutory rate.

Read more: Trump ‘Revenge’ Tax Would Cut Foreign Investment, Congressional Panel Says