Latest news with #Section899
Business Times
17 hours ago
- Business
- Business Times
Obscure tax item in Trump's Bill alarms Wall Street
BURIED deep in the more than 1,000-page tax-and-spending bill that President Donald Trump is muscling through Congress is an obscure tax measure that's setting off alarms on Wall Street and beyond. The item – introduced in legislation that passed the House last week as Section 899 and titled 'Enforcement of Remedies Against Unfair Foreign Taxes' – calls for, among other things, increasing tax rates for individuals and companies from countries whose tax policies the US deems 'discriminatory.' This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets. Cloaked in technicalities, the implication of the 'revenge' measure, as it's quickly becoming known, is clear to analysts: If signed into law, it would further drive away foreign investors at a time when their once ironclad confidence in Treasury bonds and other US assets has already been shaken by Trump's erratic trade policies and the nation's deteriorating fiscal accounts. 'We're already dealing with a market where Treasuries, to foreign investors, probably aren't the most attractive investment,' said Michael Brown, a strategist at Pepperstone Group, a brokerage firm founded in Melbourne whose clients are all outside the US. Brown said he got so many inquiries from concerned clients that he quickly put together a report breaking down the measure. 'If you're now talking about massively unfavorable tax treatment, then it's just another reason to stay away.' Among those potentially affected: institutional investors including sovereign wealth funds, pension funds and even government entities, as well as retail investors and businesses with US assets. The proposed tax is separate from Trump's tariff-heavy trade agenda, which is now snarled in court, but the thrust is the same, and its aims align with some of the positions set forth by the economist Stephen Miran in a paper last November and those seeking a so-called Mar-a-Lago global restructuring accord. All seek to address perceived unfair treatment of the US by the rest of the world using targeted tools designed to put the country on a more even footing. But after years of foreign investors piling into US assets, experts fear the consequences of Section 899 may be far-reaching. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The provision amounts to 'weaponization of US capital markets into law' that '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,' George Saravelos, head of FX research at Deutsche Bank AG, wrote in a report on Thursday. '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.' Section 899 takes aim at countries including Canada, the UK, France and Australia that impose 'digital services taxes' on large technology companies such as Meta Platforms Inc. The clause also targets countries using provisions in a multi-country deal for minimum corporate taxes. The measure would boost the federal income tax rate on passive US income earned by investors and institutions based in the targeted countries, first by five percentage points, then rising by another five points each year to a maximum of 20 points above the statutory rate. 'Troubling' for bonds, dollar Morgan Stanley's strategists included the provision in frequently asked questions related to the tax-and-spending bill and concluded that Section 899 would weaken the dollar and European stocks with US exposure. Gilles Moec, the chief economist at AXA Group, said it could add to the pressure on long-term interest rates, which this month touched multi-year highs. Others see it dragging on the US currency. 'It's indeed sounds troubling,' said Rogier Quaedvlieg, senior US economist at ABN Amro Bank NV. 'By limiting new foreign demand, that would of course put pressure on the dollar.'' The risks related to the section 899 provision are seen by some as even more pressing after the US court order on Wednesday that blocked many of Trump's tariffs on imports. Tariffs are considered a key source of revenue to fund Trump's tax cuts, a signature part of his 'big, beautiful bill.' Without them, the question is where the administration will find the money to fund them. The intent of the measure appears similar in spirit to some ideas put forth in November by Miran while he was still working at hedge fund Hudson Bay Capital. Miran, now chairman of the White House Council of Economic Advisers, raised the possibility of imposing 'user fees' on foreign investors in Treasuries as one option to help push down the dollar and address global trade imbalances. 'The clause is clearly endorsed by the administration and designed to give Trump a negotiation tool for pressuring countries to drop digital services taxes and global minimum corporate income taxes, which he sees as unfairly targeting US multinational companies,' wrote Economist Will Denyer and Tan Kai Xian at Gavekal Research. 'The problem is that before Trump has a chance to use the new tool, its very existence may unsettle bond markets.' What strategists say 'With tariff revenue more uncertain and less likely to offset tax cuts in the GOP budget bill, traders need to be prepared for tax changes on foreign holders, ultimately reducing demand for American financial assets.' – Michael Ball, Markets Live macro strategist For now, the market reaction to Section 899 appears muted, at best. Still, US assets as a whole have been underperformers this year as Trump's policies put a dent in the narrative of the 'America exceptionalism.' The S&P 500 is up about 0.4% this year, compared with a 20% gain in the German benchmark and a 18% rally in Hong Kong. The Bloomberg Dollar Index slumped about 7%. The US Treasuries returned 2%, trailing the 5% gain in the global government bonds in dollar terms, according to data compiled by Bloomberg. Under the surface Section 899 is likely to remain in the final version of the reconciliation package, which is now being reviewed in Senate, because it has broad Republican support, according to Signum Global Advisors. While some are skeptical if the Section 899 would survive on concern it would dampen foreign investment into the US, Signum Global Advisors predicts it will likely remain in the final version of the reconciliation package, in part because it has broad Republican support. 'We believe the president's viewpoint is that there is such immense foreign appetite to invest in the US that it is not at risk of being thrown off course,' according to Charles Myers, a former Wall Street executive who runs advisory firm Signum, and Lew Lukens, a partner at the firm. To Pepperstone's Brown, the reason markets haven't reacted yet is because investors hadn't fully grasped the significance of the clause. But they're starting to now. 'It's only as the dust has settled that people are thinking that maybe there are some things lurking under the surface of the bill we should pay a little bit more attention to,' said Brown. 'And I think this section 899, this is probably one of them.' BLOOMBERG
Yahoo
2 days ago
- Business
- Yahoo
Trump ‘Revenge' Tax Would Cut Foreign Investment, Congressional Panel Says
(Bloomberg) -- Congress's own official tax scorekeeper is predicting a 'revenge' tax buried in Donald Trump's massive fiscal package would realize Wall Street's fears and drive foreign investors away from US markets. NYC Congestion Toll Brings In $216 Million in First Four Months Now With Colorful Blocks, Tirana's Pyramid Represents a Changing Albania The Economic Benefits of Paying Workers to Move Billionaire Steve Cohen Wants NY to Expand Taxpayer-Backed Ferry NY Wins Order Against US Funding Freeze in Congestion Fight The item — introduced in legislation that passed the House last week as Section 899 — would increase tax rates for individuals and companies from countries whose tax policies the US deems 'discriminatory.' This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets. Wall Street analysts are warning the provision would create another disincentive for foreign investors at a time when their once ironclad confidence in Treasury bonds and other US assets has already been shaken by Trump's erratic trade policies and the nation's deteriorating fiscal accounts. Congress's nonpartisan Joint Committee on Taxation, charged with producing official revenue forecasts for the legislation, assessed it would lead to a 'decline in foreign demand for US direct and portfolio investment' and 'general avoidance and compliance behavior' by foreign companies in response to the retaliatory taxes, Thomas Barthold, the JCT's chief of staff, said in a statement to Bloomberg Tax in response to questions about the committee's estimates. As a result of that, and its effects on US tax receipts and US asset values, revenues from the proposal are projected to decline beginning in 2028 and turn into a loss in the last years of the 10-year budget window that the JCT examined, Barthold told Bloomberg Tax. The JCT has estimated the provision will bring in $116.3 billion in revenue over the next 10 years. But the committee projected it would ultimately lower annual US tax revenues by $12.9 billion in 2033 and 2034. Barthold said the reduced profitability of foreign-headquartered companies would reduce baseline US tax receipts. He added that lower foreign demand for US investment would also reduce US asset values. Those effects 'dominate' the revenues collected under the retaliatory tax plan in the last years of the 10-year window, leading to the revenue loss, he said. For now, the market reaction to Section 899 appears muted at best. Still, US assets as a whole have been underperformers this year as Trump's policies put a dent in the narrative of the 'America exceptionalism.' Long-term Treasury yields have catapulted higher this year and the value of the US dollar has dropped by about 7%, according to the Bloomberg Dollar Index. Moody's Ratings downgrade of the US government's credit rating this month has also added to a 'Sell America' trade. Foreign investment in US long-term securities, including stocks and bonds, amounts to around $31 trillion. And while foreign accounts' share of US Treasury debt has slid in the last decade, they still hold about a third of the near $29 trillion outstanding. 'A foreign tax provision in the One Big Beautiful Bill Act is alarming,' wrote Elias Haddad, a strategist at Brown Brothers Harriman & Co. in a note. 'If the bill as presently written takes effect, it would deter foreign investment in US assets at a time when the country faces increasing reliance on foreign capital to finance its ballooning debt.' House Ways and Means Committee Chair Jason Smith, whose committee handled the measure's tax components, said he hopes the provision will serve as a deterrent to foreign governments and won't be deployed. He described the provision as an effective tool for retaliating against countries that try to crack down on US businesses. 'A big concern is that foreign governments, based on agreements entered by the Biden administration, is trying to suck away billions of dollars from US companies,' Smith said during a panel in California, referring to countries that are seeking to impose digital services taxes on large technology companies such as Meta Platforms Inc. and Alphabet Inc.'s Google. 'In fact, $120 billion from US companies. This is a way to help put them in check so that they understand if they do that to US businesses, there will be consequences for their actions.' Smith added the tax writers are hoping that punitive tax rate in Section 899 isn't imposed. 'Hopefully it'll never take effect,' Smith said. The Trump tax provision would boost the federal income tax rate on passive US income earned by investors and institutions based in the targeted countries, first by 5 percentage points, then rising by another five points each year to a maximum of 20 points above the statutory rate. YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Millions of Americans Are Obsessed With This Japanese Barbecue Sauce How Coach Handbags Became a Gen Z Status Symbol Will Small Business Owners Knock Down Trump's Mighty Tariffs? ©2025 Bloomberg L.P. 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Yahoo
3 days ago
- Business
- Yahoo
Trump plots tax raid on foreign companies in threat to Britain
Donald Trump is seeking new powers to hit foreign businesses with taxes if they take money out of America, in a crackdown that could hit Britain. Proposals contained within Mr Trump's 'big, beautiful' tax and spending bill would hand the president the ability to impose levies on individuals and companies from countries deemed to have 'discriminatory' tax policies. It has raised fears that Mr Trump could use the powers on Britain. The president has repeatedly criticised digital taxes on US tech giants, claiming they are unfair. Prominent British businesses with major operations in the US include Barclays, BP and BAE Systems. The so-called Section 899 powers would allow the president to impose levies of up to 20pc on money taken out of the US. Ron Estes, a Republican member of the House of Representatives, said: 'If foreign countries want to come into the United States and tax US businesses, then those foreign-based businesses ought to be taxed as well.' Fears that the powers could be used on the UK come as the Trump administration continues to push Sir Keir Starmer to water down or scrap Britain's digital service tax, which applies to US tech giants. The two sides continue to negotiate despite the trade deal struck earlier in May. Anna Leach, chief economist at the Institute of Directors, said the Section 899 powers would put more pressure on the Prime Minister in the talks. 'It adds further pressure to the ongoing UK-US trade negotiations – the terms for the deal announced on May 8 already 'commits' (but does not legally bind) both the US and the UK to negotiating 'an ambitious set of digital trade provisions',' she said. Scrapping or watering down the digital services tax, which is forecast to raise more than £1bn per year, would be a blow to Rachel Reeves, who is already facing pressure to find billions of pounds more to fund an about-turn on winter fuel payments to pensioners. Downing Street has previously insisted the tax is not up for negotiation. At present, businesses operating in the US are subject to various state and federal-level taxes, but the powers contained within the new bill would allow an additional levy to be added on top. It would apply not just to corporate profits but also gains from investments into US assets, potentially including government debt. The powers would only penalise companies that take money out of the US. It comes as Mr Trump pushes businesses to invest and keep more money in the country. Peter Roskam, a former Republican member of the House of Representatives, and now head of law firm BakerHostetler's federal policy team, said the proposal 'brings a sledgehammer to the idea that the US will allow itself to be characterised as a tax haven by anyone'. However, experts said the threat would make foreign investors and businesses less willing to commit to the US. Ms Leach said: 'This would stoke uncertainty further, undermine returns and reduce the attractiveness of the States as an investment destination. 'This is perhaps helpful to the Chancellor who is seeking to persuade investors to place their bets on the UK market.' Chris Sanger, tax partner at EY, said: 'It would impose an additional cost on foreign businesses operating in the US. That might mean the governments outside the US would change their rules, or it might mean that companies, much as they are seeing with tariffs, have an additional cost of operating in the US, which may make them less competitive in the US market.' George Saravelos at Deutsche Bank said the tax threat could pose a risk to the US's own public finances. The rule appears to allow Mr Trump to impose the border tax on foreign investors who buy US government bonds – effectively lending to the country – if they attempt to transfer the interest earned from those bonds back to their home countries. Mr Saravelos described it as a 'weaponisation of US capital markets' that would put investors off financing the US state. He said: 'The adverse impact on demand for US Treasuries and funding the US twin deficit at a time when this is most needed is clear.' Jordan Rochester, at investment bank Mizuho, said investors would demand a higher rate of interest from the US government to compensate for any higher charges, driving up the White House's borrowing costs. 'Just the threat of it being used could spook investors, trigger another sizeable market sell-off, and make the administration think twice about its actual use,' he said. Mr Trump's tax and spending bill contains a wide range of provisions and policies, but predominantly sets out trillions of dollars of tax breaks partly funded through cuts to healthcare. The bill was narrowly passed by the House of Representatives earlier in May and has now moved to the Senate for approval. Commenting on its passage, Mr Trump wrote on Truth Social: 'This is arguably the most significant piece of legislation that will ever be signed in the history of our country.' HM Treasury was contacted for comment. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Axios
3 days ago
- Business
- Axios
GOP tax chief says Trump bill will keep foreign nations "in check"
House Ways and Means chair Rep. Jason Smith (R-Mo.) said a measure in President Trump's proposed tax bill that takes aim at foreign investors is a way to keep other nations "in check." Why it matters: Wall Street is worried that a tax on foreign investment contained in the "One Big Beautiful Bill" could make overseas investors reluctant to buy U.S. assets — at a time they are already wary of U.S. policies. What they're saying: "A big concern is that foreign governments, based on agreements entered into by the Biden administration, is trying to suck away billions of dollars from U.S. companies," Smith told Axios' Neil Irwin at the Reagan National Economic Forum. "This is a way to help put them in check, so that they understand that if they do that to our businesses, there will be consequences for their actions. Hopefully it'll never take an effect," Smith said. Catch up quick: The provision, called Section 899, proposes increasing tax rates for foreign direct investment from countries with unfair tax policies, as judged by the Trump administration. So, for example, an overseas sovereign wealth fund that owns U.S. stocks and bonds could face a tax on the earnings on their investment. The fear is that such a levy turns off foreign investors at a crucial moment: there are concerns that the safe-haven status of U.S. assets is in question, which would make it more difficult to borrow. What to watch: Asked whether Smith was concerned about this possibility, the top tax lawmaker said discriminatory tax regimes were a risk to U.S. corporations. "We're the first country in 2017 that created a global minimum tax. They don't even accept our global minimum tax. That's completely unfair," Smith said. "We're being punished for actually following what they're trying to do," Smith added. The other side: "The measure risks detonating investor confidence and could set off a damaging pullback of foreign capital just as the US needs it most," said Nigel Green, CEO of deVere Group, a financial advisory and asset management firm.
Yahoo
3 days ago
- Business
- Yahoo
Trump plots tax raid on foreign companies in threat to Britain
Donald Trump is seeking new powers to hit foreign businesses with taxes if they take money out of America, in a crackdown that could hit Britain. Proposals contained within Mr Trump's 'big, beautiful' tax and spending bill would hand the president the ability to impose levies on individuals and companies from countries deemed to have 'discriminatory' tax policies. It has raised fears that Mr Trump could use the powers on Britain. The president has repeatedly criticised digital taxes on US tech giants, claiming they are unfair. Prominent British businesses with major operations in the US include Barclays, BP and BAE Systems. The so-called Section 899 powers would allow the president to impose levies of up to 20pc on money taken out of the US. Ron Estes, a Republican member of the House of Representatives, said: 'If foreign countries want to come into the United States and tax US businesses, then those foreign-based businesses ought to be taxed as well.' Fears that the powers could be used on the UK come as the Trump administration continues to push Sir Keir Starmer to water down or scrap Britain's digital service tax, which applies to US tech giants. The two sides continue to negotiate despite the trade deal struck earlier in May. Anna Leach, chief economist at the Institute of Directors, said the Section 899 powers would put more pressure on the Prime Minister in the talks. 'It adds further pressure to the ongoing UK-US trade negotiations – the terms for the deal announced on May 8 already 'commits' (but does not legally bind) both the US and the UK to negotiating 'an ambitious set of digital trade provisions',' she said. Scrapping or watering down the digital services tax, which is forecast to raise more than £1bn per year, would be a blow to Rachel Reeves, who is already facing pressure to find billions of pounds more to fund an about-turn on winter fuel payments to pensioners. Downing Street has previously insisted the tax is not up for negotiation. At present, businesses operating in the US are subject to various state and federal-level taxes, but the powers contained within the new bill would allow an additional levy to be added on top. It would apply not just to corporate profits but also gains from investments into US assets, potentially including government debt. The powers would only penalise companies that take money out of the US. It comes as Mr Trump pushes businesses to invest and keep more money in the country. Peter Roskam, a former Republican member of the House of Representatives, and now head of law firm BakerHostetler's federal policy team, said the proposal 'brings a sledgehammer to the idea that the US will allow itself to be characterised as a tax haven by anyone'. However, experts said the threat would make foreign investors and businesses less willing to commit to the US. Ms Leach said: 'This would stoke uncertainty further, undermine returns and reduce the attractiveness of the States as an investment destination. 'This is perhaps helpful to the Chancellor who is seeking to persuade investors to place their bets on the UK market.' Chris Sanger, tax partner at EY, said: 'It would impose an additional cost on foreign businesses operating in the US. That might mean the governments outside the US would change their rules, or it might mean that companies, much as they are seeing with tariffs, have an additional cost of operating in the US, which may make them less competitive in the US market.' George Saravelos at Deutsche Bank said the tax threat could pose a risk to the US's own public finances. The rule appears to allow Mr Trump to impose the border tax on foreign investors who buy US government bonds – effectively lending to the country – if they attempt to transfer the interest earned from those bonds back to their home countries. Mr Saravelos described it as a 'weaponisation of US capital markets' that would put investors off financing the US state. He said: 'The adverse impact on demand for US Treasuries and funding the US twin deficit at a time when this is most needed is clear.' Jordan Rochester, at investment bank Mizuho, said investors would demand a higher rate of interest from the US government to compensate for any higher charges, driving up the White House's borrowing costs. 'Just the threat of it being used could spook investors, trigger another sizeable market sell-off, and make the administration think twice about its actual use,' he said. Mr Trump's tax and spending bill contains a wide range of provisions and policies, but predominantly sets out trillions of dollars of tax breaks partly funded through cuts to healthcare. The bill was narrowly passed by the House of Representatives earlier in May and has now moved to the Senate for approval. Commenting on its passage, Mr Trump wrote on Truth Social: 'This is arguably the most significant piece of legislation that will ever be signed in the history of our country.' HM Treasury was contacted for comment. 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
