Wall Street, Main Street push for foreign tax rethink in US budget bill

Mint

09-06-2025

Concerns over potential negative impact on U.S. investments and jobs
Senate Republicans may clarify impact on Treasuries to mitigate risks
Multinationals may shut U.S. operations, risking 8.4 million jobs, says association
By Carolina Mandl, Bo Erickson
NEW YORK/WASHINGTON, - Industry groups representing sectors including real estate, finance and multinational companies are pushing for the reduction or exclusion of a retaliatory tax targeting foreign investors in the U.S. in the Republican tax bill, as they see it as a threat to their businesses and to the broader markets and economy. The proposed tax, known as Section 899, applies a progressive tax burden of up to 20% on foreign investors' U.S. income as pushback against countries that impose taxes the U.S. considers unfair, such as digital service taxes. It could raise $116 billion in taxes over 10 years.
Some individual companies are also pushing for action, according to two lawyers familiar with their clients' plans, who did not name specific companies due to client confidentiality.
'Lobbying surrounding Section 899 is at peak levels,' said Jeff Paravano, a former Treasury Department official who is now chair of law firm BakerHostetler's tax group. The move comes as Senate Finance Committee Chairman Mike Crapo, the Republican in charge of the chamber's tax writing provisions, and other Republicans are in close coordination with President Donald Trump on the tax bill, having met on Wednesday.
The White House declined to comment. Crapo said he would not comment on ongoing discussions about the bill.
Global investors hold almost $40 trillion in U.S. assets, such as securities, loans and deposits, according to the U.S. Treasury International Capital Reporting System. This raises concerns about the ripple impact of the bill.
"It has the potential to be a very negative impact on the free flow of capital from the U.S. and through businesses that are multinational," said Gabriel Grossman, a U.S. tax partner at Linklaters, adding he has seen some clients put planned investments in the U.S. on pause until they have more clarity on the new levies. The broader bill itself is also creating much debate as it is forecast to add about $2.4 trillion to the U.S. debt and has sparked an explosive feud between Trump and his erstwhile key ally Elon Musk, the billionaire CEO of Tesla.
Industries across different sectors are on high alert.
The new levy could increase taxes from rents and real estate investment trusts, gains from property sales and securitized products.
"There is a legitimate fear among investors that, if this goes through, it could impact investments, and that it would create higher costs for real estate in terms of getting financing," said David McCarthy, managing director at the CRE Finance Council, a nonpartisan trade group. "It could depress the value of real estate if you don't have as much money to finance property purchases."
The asset management industry is concerned about outflows.
"We encourage the Senate to make this provision more targeted to respond to unfair foreign taxes and other concerning measures rather than disincentivizing beneficial foreign investment in the U.S.," a spokesperson for the Investment Company Institute said.
The investment community is also working to clarify whether Treasuries and corporate bonds will remain exempt as they are currently subject to a portfolio interest exception that applies no taxation, lawyers and industry sources said.
"There's reason to believe that fixed-income assets wouldn't be in scope, but there's still considerable uncertainty about this point," Morgan Stanley strategist Michael Zezas said in a note to clients.
A footnote part of the Budget Committee report, which provides direction to taxpayers, courts and the Treasury in interpreting the statute, says that Section 899 "does not apply to portfolio interest."
Foreigners' equity investments, however, do not count with the portfolio interest protection and could be taxed, lawyers and banks said.
Multinational companies could face a new tax burden on dividends and inter-company loans, potentially reducing profit, according to Section 899.
Jonathan Samford, president of the Global Business Alliance, a lobbying group for international companies in the U.S., said many multinationals could decide to shut down operations in the U.S., risking 8.4 million jobs in the country.
"Those companies will not be paying U.S. tax whatsoever because they will not be able to operate in that punitive, high-tax environment," he said.
Morgan Stanley said in a note to clients a repatriation of profits out of the U.S. and pressure on the U.S. dollar.
Corporate loans could also become more expensive, as loans extended by foreign banks might be subject to the new tax burden if section 899 overrides current treaties, lawyers said, adding that companies could end up paying more for the debt to make up for the tax increase.
Investors are hoping for some changes in the Senate.
Senator Steve Daines, a Montana Republican on the Finance Committee, said it may be necessary to clarify the language in Section 899.
'We want to make sure we don't have tax policies that in some way would diminish the fact that we are the gold standard in the world,' Daines said.
Morgan Stanley said in a note that it expects "sufficient Senate Republicans to take notice and clarify the policy to mitigate this risk" of increasing the cost of capital for the U.S.
"It actually is pretty much of a nuclear bomb," said Pascal Saint-Amans, partner at Brunswick Group, who is also the former tax chief of the Organization for Economic Cooperation and Development, who led the 2021 global tax treaty. "The coverage seems extremely broad and the terms are not extremely well-defined."
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