Independent Report – Industry pushback is growing among groups in real estate, finance, and multinational companies against a retaliatory tax targeting foreign investors in the U.S. under the Republican tax bill. They see this tax as a threat to their businesses and the broader economy.
The tax, known as Section 899, imposes a progressive rate of up to 20% on income earned by foreign investors in the U.S. It is designed as a response to countries that impose taxes deemed unfair by the U.S., such as digital service taxes. Over ten years, this tax could generate up to $116 billion in revenue.
Some companies are lobbying individually for changes, though they prefer to remain unnamed for confidentiality reasons. Jeff Paravano, a former Treasury official and now head of the tax group at law firm BakerHostetler, says lobbying efforts around Section 899 are at their peak.
Senate Finance Committee Chairman Mike Crapo, a Republican responsible for tax legislation in the Senate, is reportedly coordinating closely with President Donald Trump on the bill. They recently held a meeting, but both the White House and Crapo declined to comment on the ongoing discussions.
Global investors hold nearly $40 trillion in U.S. assets, including securities, loans, and deposits. This raises concerns about the broader impact of the bill. Gabriel Grossman, a U.S. tax partner at Linklaters, warns that the tax could disrupt the free flow of capital to and from the U.S. Some clients have already paused investments while awaiting clarity on the new tax.
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The bill itself is controversial because it is expected to increase the U.S. national debt by about $2.4 trillion. It has also sparked a public feud between President Trump and Elon Musk, CEO of Tesla, who was once a close ally.
Various industries are on high alert. The new tax could increase costs on rental income, real estate investment trusts, property sales gains, and securitized products. David McCarthy, managing director at the CRE Finance Council, says investors fear higher financing costs could reduce real estate values due to less available capital.
The asset management sector worries about potential capital outflows. A spokesperson for the Investment Company Institute urged the Senate to make the provision more targeted. They want the law to address unfair foreign taxes without discouraging beneficial foreign investment in the U.S. Currently, U.S. Treasuries and corporate bonds benefit from a portfolio interest exemption that excludes them from such taxes.
However, there is still uncertainty. Morgan Stanley strategists note that fixed-income assets are likely exempt but the details remain unclear. Foreign equity investments do not enjoy this protection and could face taxation.
Multinational companies might face new tax burdens on dividends and inter-company loans, which could reduce profits. Jonathan Samford, president of the Global Business Alliance, warns many multinationals could shut down U.S. operations due to this high-tax environment. This could threaten 8.4 million American jobs.
Morgan Stanley also expects profit repatriation and pressure on the U.S. dollar. Corporate loans may become more expensive because foreign bank loans could face new taxes if Section 899 overrides current treaties. Companies might pay higher costs to offset these taxes.
Investors hope for changes in the Senate. Senator Steve Daines, a Republican on the Finance Committee, stresses the need to clarify Section 899. He wants to ensure the U.S. remains the global gold standard for tax policy. Morgan Stanley expects enough Senate Republicans to push for adjustments that reduce the risk of higher capital costs.
Pascal Saint-Amans, former OECD tax chief and now a partner at Brunswick Group, describes Section 899’s scope as extremely broad and its terms vague. He calls the tax a “nuclear bomb” due to its potential widespread damage.
Overall, the proposed tax bill raises serious concerns about its impact on foreign investment, financing costs, real estate values, and the U.S. position as a prime global investment destination. Many hope the government will revise the provision to maintain America’s economic competitiveness.
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