Latest news with #GeorgeSaravelos
Mint
17 hours ago
- Business
- Mint
What is ‘revenge tax' Section 899 of the One Big Beautiful Bill? Why is it raising alarms on Wall Street?
The United States' House of Representatives passed the One Big Beautiful Bill Act, also known as OBBBA, a budget reconciliation bill which includes major provisions of the Tax Cuts and Jobs Act of 2017. Wall Street investors are shifting their focus to 'revenge tax' Section 899 of the bill, which can impact the attractiveness of US assets. Section 899 of the 'One Big Beautiful Bill' contains a clause that allows for the possibility of imposing a progressive tax load of up to 20 per cent on the passive income of foreign investors, such as dividend or royalty payments. This charge will be paid by entities like sovereign funds and companies that have businesses in the United States or individuals from nations that impose duties on the US that it considers unfair, including a digital service tax. According to Reuters' report from Friday, 30 May 2025, George Saravelos, the head of FX Research at Deutsche Bank, said in a note that this legislation is expected to transform the ongoing trade war between the US and other world nations into a capital war. 'We see this legislation as creating the scope for the U.S. administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today's court decision constraining President Trump on trade policy,' said Saravelos in the note. US stock market investors are becoming concerned over Section 899 in the 'One Big Beautiful Bill,' as it is expected to target foreign investors in the United States. This, in turn, may weaken the demand for US government bonds and the US dollar. This comes amid ongoing uncertainties due to the baseline and reciprocal tariffs imposed by US President Donald Trump on all imports from other world nations, which have led to a tariff war that is raging to date. If the US Senate passes the bill, the rising tax rate on foreign investors is likely to raise concerns in addition to the tariff woes, rising fiscal deficit, and ballooning debt for the Western nation. 'It would deter foreign investment in U.S. assets at a time when the country faces increasing reliance on foreign capital to finance its ballooning debt. Clearly, this is not good for the dollar,' Elias Haddad, senior market strategist at Brown Brothers Harriman (BBH), told the news agency. A Fortune report cited Even House Ways and Means Committee Chair Jason Smith, who in a panel discussion said that he hopes that it is never used and instead acts more like a 'deterrent,' which stops other nations from cracking down on US firms. As the Section 899 fears loomed over Wall Street, the global financial services group, Nomura, told the news agency that if the Senate passes the Bill, the US should likely expect a 'pushback' against the new tax rate or negotiations to seek exemptions for US Treasuries and agency mortgage-backed securities. The Bloomberg US Dollar Spot Index was up 0.05 per cent at 99.329 as of 12:00 a.m. (EDT) on Friday, 30 May 2025.
Yahoo
a day ago
- Business
- Yahoo
The ‘revenge tax' buried deep in the budget bill could turn a trade war into a ‘capital war,' analyst says
Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms on Wall Street, after the once-obscure provision was initially overshadowed by the budget proposal's estimated impact on the deficit. Deutsche Bank warned that what's been dubbed the 'revenge tax' could further harm the attractiveness of U.S. assets. As Wall Street continued digesting the myriad line items in the 1,000-page budget bill that passed recently, one part has triggered an especially acute case of heartburn. Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms, after the once-obscure provision was initially overshadowed by the budget's estimated impact on the deficit. It has been dubbed the 'revenge tax' because it would increase rates for individuals and companies from countries with tax policies branded as 'discriminatory.' That means foreign investors, who own trillions of dollars in U.S. assets, could face higher levies on passive income like dividends and interest payments. Investors have already shifted toward Europe and China as President Donald Trump's aggressive tariff agenda has eroded the idea 'American exceptionalism.' Meanwhile, foreign investors are showing signs of a buyer's strike, shunning U.S. assets. For George Saravelos, head of FX research at Deutsche Bank, the idea of a revenge tax could make them even less attractive. It's also notable in the wake of a U.S. trade court's ruling Tuesday that invalidated Trump's reciprocal tariffs, as Section 899 could represent an alternative tool. 'We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today's court decision constraining President Trump on trade policy,' Saravelos wrote in a note. He pointed out that Section 899 uses taxation on foreign investors as leverage to advance U.S. economic priorities and only has to meet a low bar before it can be enforced. It would also make covering deficits more difficult by lowering the de facto yield foreign government earn from U.S. Treasury bonds by nearly 100 basis points, Saravelos estimated. While the ultimate impact could be less than that, the mere introduction of more uncertainty and complexity around investing in U.S. assets 'undermines the attractiveness of dollar inflows at a time when this is already put in to question,' he warned. 'It is not unreasonable for the market to conclude that if the President is constrained on using trade policy, taxing foreign capital could be a new means of leverage,' he added. Even House Ways and Means Committee Chair Jason Smith, who supports the revenge tax, said during a panel discussion on Friday that he hopes it's never used and instead acts like more of a deterrent that stops other countries from cracking down on U.S. companies unfairly. Meanwhile, the Joint Committee on Taxation, the nonpartisan tax scorekeeper for Congress, echoed some of Wall Street's fears. Thomas Barthold, the committee's chief of staff, said in a statement to Bloomberg Tax that Section 899 would lead to a 'decline in foreign demand for US direct and portfolio investment.' This story was originally featured on
Yahoo
a day ago
- Business
- Yahoo
The ‘revenge tax' buried deep in the budget bill could turn a trade war into a ‘capital war,' analyst says
Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms on Wall Street, after the once-obscure provision was initially overshadowed by the budget proposal's estimated impact on the deficit. Deutsche Bank warned that what's been dubbed the 'revenge tax' could further harm the attractiveness of U.S. assets. As Wall Street continued digesting the myriad line items in the 1,000-page budget bill that passed recently, one part has triggered an especially acute case of heartburn. Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms, after the once-obscure provision was initially overshadowed by the budget's estimated impact on the deficit. It has been dubbed the 'revenge tax' because it would increase rates for individuals and companies from countries with tax policies branded as 'discriminatory.' That means foreign investors, who own trillions of dollars in U.S. assets, could face higher levies on passive income like dividends and interest payments. Investors have already shifted toward Europe and China as President Donald Trump's aggressive tariff agenda has eroded the idea 'American exceptionalism.' Meanwhile, foreign investors are showing signs of a buyer's strike, shunning U.S. assets. For George Saravelos, head of FX research at Deutsche Bank, the idea of a revenge tax could make them even less attractive. It's also notable in the wake of a U.S. trade court's ruling Tuesday that invalidated Trump's reciprocal tariffs, as Section 899 could represent an alternative tool. 'We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today's court decision constraining President Trump on trade policy,' Saravelos wrote in a note. He pointed out that Section 899 uses taxation on foreign investors as leverage to advance U.S. economic priorities and only has to meet a low bar before it can be enforced. It would also make covering deficits more difficult by lowering the de facto yield foreign government earn from U.S. Treasury bonds by nearly 100 basis points, Saravelos estimated. While the ultimate impact could be less than that, the mere introduction of more uncertainty and complexity around investing in U.S. assets 'undermines the attractiveness of dollar inflows at a time when this is already put in to question,' he warned. 'It is not unreasonable for the market to conclude that if the President is constrained on using trade policy, taxing foreign capital could be a new means of leverage,' he added. Even House Ways and Means Committee Chair Jason Smith, who supports the revenge tax, said during a panel discussion on Friday that he hopes it's never used and instead acts like more of a deterrent that stops other countries from cracking down on U.S. companies unfairly. Meanwhile, the Joint Committee on Taxation, the nonpartisan tax scorekeeper for Congress, echoed some of Wall Street's fears. Thomas Barthold, the committee's chief of staff, said in a statement to Bloomberg Tax that Section 899 would lead to a 'decline in foreign demand for US direct and portfolio investment.' This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
NBC News
3 days ago
- Business
- NBC News
U.S. foreign tax bill sends jitters across Wall Street
While U.S. President Donald Trump's tariffs play out in U.S. courts, another one of his proposed laws could weaponize the American tax system. Investment banks and law firms warn this step could prove to be as significant as the impact of duties on investors. The 'One Big Beautiful Bill Act,' which passed through the U.S. House of Representatives last week, includes the most sweeping changes to the tax treatment of foreign capital in the U.S. in decades under a provision known as Section 899. The bill must still gain the Senate's approval. 'We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes,' said George Saravelos, global head of FX research at Deutsche Bank on Thursday. 'Section 899 challenges the open nature of US capital markets by explicitly using taxation on foreign holdings of US assets as leverage to further US economic goals,' Saravelos added in the note to clients, under the subtitle 'weaponization of US capital markets in to law.' Section 899 says it will hit entities from 'discriminatory foreign countries' — those that impose levies such as the digital services taxes that disproportionately affect U.S. companies. France, for instance, has a 3% tax on revenues from online platforms, which primarily targets big technology firms such as Google, Amazon, Facebook, and Apple. Germany is reportedly considering a similar tax of 10%. What does the proposed tax do? Under the new tax bill, the U.S. would hit investors from such countries by increasing taxes on U.S. income by 5 percentage points each year, potentially taking the rate up to 20%. Emmanuel Cau, head of European Equity Strategy at Barclays, suggested that the mere passage of the tax legislation could make dollar assets less valuable for foreign investors. 'In our view, this is a risk for those companies generating US revenues, and domiciled in countries that have enacted Digital Services Taxes (DST) or are implementing the OECD's Under Taxed Payment Rule (UTPR),' Cau said in a Friday note to clients. He highlighted companies such as London-listed Compass Group, which provides catering services to U.S. schools, and InterContinental Hotels, which owns at least 25 luxury hotels in the U.S., are likely to be affected by the proposed law. 'Given US net international investment position is sharply negative, there is indeed scope for capital outflows if indeed S899 passes through the Senate in its current form,' he added. The impact of the bill won't be limited to European companies or individuals from those states. The bill 'could significantly increase tax rates applicable to certain non-U.S. individuals and business, governmental, and other entities,' said Max Levine, head of U.S. tax at the law firm Linklaters. This means it could also ensnare governments and central banks, which are large investors of U.S. Treasuries. France and Germany, for instance, held a combined $475 billion worth of U.S. government bonds as of March. The proposed tax would lower returns on U.S. Treasuries for those investors as 'the de facto yield on US Treasuries would drop by nearly 100bps,' Deutsche Bank's Saravelos added. 'The adverse impact on demand for USTs and funding the US twin deficit at a time when this is most needed is clear'. 'It's very bad,' said Beat Wittmann, chairman of Switzerland-based Porta Advisors. 'This is huge — this is just one piece in the overall plan and it's completely consistent with what this administration is all about.' 'The ultimate judge for this is not our opinions, it's the bond market,' Wittmann added. 'The U.S. bond market is discounting these developments, and we have seen in the last few weeks, that if there was a safe haven move, investors clearly prefer German bunds.' Large Australian pension funds with U.S. investments have also been reportedly concerned by the bill, since Australia operates a medicines subsidy scheme that is opposed by large U.S. pharmaceutical companies. Legal experts at the Mayer Brown law firm suggest that 'significant changes' could be made to the bill as it passes through the U.S. Senate before it's enshrined into law by Trump. 'As such, there may be questions about whether the provisions of the proposal that override tax treaties could be included in the US Senate's version of the tax bill,' Mayer Brown's experts said.
Economic Times
3 days ago
- Business
- Economic Times
Wall Street fears foreign tax in budget bill may reduce allure of US assets
Wall Street analysts are cautioning that a tax targeting foreign investors in the U.S. budget bill progressing through Congress could end up weighing on demand for U.S. Treasuries and the dollar. ADVERTISEMENT The U.S. House of Representatives last week approved a sweeping tax and spending bill that includes the possibility of imposing a progressive tax burden of up to 20% on foreign investors' passive income, such as dividends and royalties. The levy, included in section 899, would be paid by entities or individuals from countries that impose taxes the U.S. considers unfair. If it is also approved by the Senate, it could raise $116 billion in taxes over ten years, according to the Congressional Budget Office. "We see this legislation as creating the scope for the U.S. administration to transform a trade war into a capital war if it so wishes," George Saravelos, head of FX research at Deutsche Bank, said in a note on Thursday, adding the new tax could have an adverse impact on demand for U.S. Treasuries. If passed by the Senate, the rising tax rate on foreigners' investments would come at a time global investors have started to question so-called "U.S. exceptionalism," or its unique ability to outperform other financial markets, amid growing fiscal deficits and a new trade policy based on tariffs. Morgan Stanley said in a note that the new tax would weaken the dollar, as it would reduce the foreign appetite for U.S. assets. ADVERTISEMENT Morgan Stanley's strategist Michael Zezas singled out European investors with passive income in the U.S. as particularly vulnerable to the tax. The bank did not provide any estimate for the impact. According to law firm Davis Polk, nations that could be considered "discriminatory foreign countries" include many that are part of the European Union, as well as India, Brazil, Australia and United Kingdom. ADVERTISEMENT The White House did not immediately comment on the impact of the new tax burden. (You can now subscribe to our ETMarkets WhatsApp channel)
