Article originally in the Financial Times. Other articles .
Gillian Tett is a commentator and member of the Financial Times editorial board
Thirty years ago, when I was a starting reporter, one journalist veteran offered me a wise advice: whenever you get a government or corporate document that has more than a hundred pages, look for hidden mines.
An example is more than a thousand -page “big, beautiful law” of Donald Trump. Since it was approved by the House of Representatives last week, this fiscal law has been criticized for many reasons: it favors the rich from the poor, cruelly limits social rescue networks and ruthlessly increases debt. Even Elon Musk is upset.
Tax of revenge
However, what should also be concerned about investors if they are interested in the state of the state treasury bills or are a non -American entity owned by US assets, the provision is hidden in the bowels of this monster called Section 899.
This would allow the US Ministry to impose sanctions on “relevant persons” from “discriminatory foreign countries” by increasing the federal income tax and withholding tax on their investments in the United States by up to 20 percentage points on a moving scale.
This could therefore be considered a new “revenge tax” (as some lawyers call it) that Trump could use to intimidate friends and enemies in business negotiations. All of this, at best, will weaken the efforts to build a global cooperation -based global tax system so far through groups such as OECD, with its rules for non -taxed profits.
In the worst case, this makes Trump a feudal European king who intends to use taxes as an arbitrary tool for recovering tributes from abroad. In any case, this gives rise to the idea that investment laws are consistent in America. It shocked lawyers in countries like Canada.
Tax War declaration
“Section 899 is toxic [a] Potentially changing the rules of play for foreign investment, ”said Larson Gross’s tax advisory to clients this week.
George Saravelos, analyst Deutsche Bank, writes in a client report: “Section 899 challenges the open nature of US capital markets by explicitly using the taxation of foreign possession of US assets as a lever to promote the United States’ economic objectives.”
So will this proposal be actually law? The only sincere answer (as in the case of most of Trump’s political decisions) is “no one knows”. Finally, Trumps often bark more than bite, and the courts sometimes attract his reins, as was the case last week in the case of tariffs.
In any case, there is a number of unknown in connection with Article 899. The Senate could insist on mitigating or removing this clause. Or if the surcharge remains maintained, there may be provisions that will allow the affected non -American investors and compensate for companies from domestic tax accounts.
The EU can be an easy target
No one knows exactly how the “discriminatory foreign country” will be defined (although the Ministry of Finance should regularly inform). It is not even clear what investors and companies could affect. At first glance, the bill concerns only investors and companies that are already subject to tax liability in the United States.
However, as I recently mentioned, the White House recently warned in the executive order that he could annul the key 1984 key decision, which, among other things, freed Chinese investors from the previous 30 % withholding tax on assets, such as US government bonds. If this happens, these flows could also affect the section 899, as analysts like Michael McNAir.
Another reason for uncertainty is the contradictions between Trump’s own advisors. Some are said to like the idea of imposing a revenge tax on foreigners, because it takes Trump’s voter base. Think-tank related to Vice President JD Vance believes that such taxes could bring two trillion dollars in the next decade.
And personalities like the business Minister of the Howard Lutnick would like to find new weapons they could have in business negotiations with the EU and Canada. As the law firm Davis Polk points out, these two regions, along with the United Kingdom, introduce taxes on digital services, and thus could become an easy goal for measures under Article 899.
From commercial wars of capital warfare
However, Finance Minister Scott Bessent is likely to be cautious about referring to Article 899 because he does not want to discourage global investors from government bonds. After all, he needs to sell a number of US state securities so that he can finance the ever -increasing debt. There are already signs of capital leakage.
Either way, the crucial is that the very presence of paragraph 899 in this bill – whatever happens – is likely to weaken even more global confidence, as Trump’s team shows at least the idea of changing commercial wars into capital wars in the future.
No wonder investment groups, from Canadian pension funds to powerful Asian institutions, tell me that they are inconspicuously diverting from US assets. Or that representatives of the Federal Reserve System recently feared likely damage to the US economy if its “safe port” status for investment was weakened. Like any legislative mine, this is also sentenced to failure. The Senate should kick it out.
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