Thirty years ago, when I was a rookie journalist, a veteran writer gave me the sage’s advice: whenever there are more than 100 pages of government or company documents, I look for hidden bombs.
Donald Trump's Plus "Big and Beautiful Bill" is a good example. Since the House passed the House last week, the fiscal bill has been slammed (correctly) for a number of reasons: It benefits the rich rather than the poor. Cruelly cut social safety nets; and briskly expand debt. Even Elon Musk was frustrated.
However, if investors are concerned about the state of the treasury or a non-U.S. entity holding U.S. assets, they should also worry that burying themselves in the guts of the behemoth is a clause. This will allow the U.S. Treasury to raise the U.S. Treasury’s investment rate on stocks by limiting “applicable persons” to “discriminatory tax rates” and thus limiting it to “discriminatory tax rates” by limiting it to “discriminatory tax rates”, thereby limiting it to “discriminatory tax rates”, thereby limiting it to “discriminatory tax rates”, thereby limiting it to “discriminatory tax rates”, thereby limiting it to “discriminatory tax rates”. scale. Therefore, it may be seen as a novel "revenge tax" (as some lawyers have said) that Trump can use to bully friends and enemies in trade negotiations.
So, at best, all of this undermines previous efforts to establish collaborative global taxation through groups such as the OECD, its profit rules. In the worst case, Trump looks like a feudal European king, intending to use taxation as a capricious tool to extract foreign tributes. Either way, it undermines the United States as a place where investment laws are consistent and shocks lawyers in countries like Canada.
"Section 899 is a toxic (and a game changer that could change foreign investment," Tax Advisory Group Larson Gross told clients this week. Or as Neil Bass, a Canadian lawyer wrote in his own letter: "The United States has just declared a tax war, and it is targeting allies."
"Section 899 challenges the open nature of the U.S. capital market by explicitly taxing foreign assets on U.S. assets as a leverage for further U.S. economic goals," Deutsche Bank analyst George Saravelos wrote in a client notation.
So, will this actually become law? The only honest answer (as with Trump’s massive decisions) is “no one knows.” After all, Trump’s bark is usually worse than his bite, and the courts sometimes tie him up, as the tariffs have seen this week.
In any case, there are many known unknowns in Section 899. The Senate may insist that the clause was watered or removed. Or, if the surcharge remains the same, there may be some provisions that allow affected non-U.S. investors and companies to offset this with the domestic tax bill.
No one knows exactly how to define a "discriminatory foreign country" (although the Ministry of Finance should report it to this regularly). It is also not entirely clear which investors and companies may be hit.
At first glance, the bill only affects non-U.S. investors and companies that have already paid U.S. taxes. But, as I recently pointed out, the White House recently warned that it could overturn a crucial 1984 ruling that exempted Chinese investors, including the top 30% of U.S. Treasury bonds, from withholding taxes on assets. If so, those streams could also be hit by Section 899, as Michael McNair suggested analysts.
Another reason for uncertainty is the split between Trump’s own advisers. I was told that some people like the idea of levying a revenge tax on foreigners because it will work with the Maga base - a wisdom alliance with Vice President Jd Vance said that such tax could raise $2 in revenue over the next decade.
Figures like Commerce Secretary Howard Lutnick are eager to find new weapons to wield trade talks with the EU and Canada.
As law firm Davis Polk notes, the fact that the two regions impose digital services tax along with the UK could make it easy to target the Article 899 measure.
However, Treasury Secretary Scott Bessent may be cautious about Section 899 because he does not want to scare global investors away from the Treasury. After all, he needs to sell U.S. government bonds to fund expanding debt, and there are already some hints of capital flight.
Either way, the key point is that only Article 899 (regardless of what happens eventually) in this bill could further undermine global trust because it shows that the Trump team is at least entertaining the idea of a future trade war.
No wonder investment groups from Canadian pension funds to powerful Asian institutions told me they are secretly diversifying from U.S. assets. Or, if Fed officials recently undermined the “safe haven” investments in the U.S. economy, it could damage the damage to the U.S. economy. With the development of legislative bombs, this is self-deception. The Senate should kick it away.
gillian.tett@ft.com