In the proposed "big bill," President Donald Trump hopes that more than 1,000 pages of tax and expenditure overhaul that lawfully enacted is a provision called the "revenge tax."
In Section 899, the Trump administration believes that countries that impose unfair or discriminatory taxes on U.S. companies and individuals “measures to unfair foreign taxes” and will allow the U.S. to impose more taxes on entities in those countries.
For example, the provision requires taxation from income from digital services such as data profits and online advertising.
The proposal also includes higher minimum taxes on foreign entities’ profits, even if those profits are obtained outside the U.S. borders. This could affect passive income streams, such as interest and dividends, and could prevent international investors from coming from countries marked as discriminatory.
The unpredictable approach of governments to global economic policies has created uncertainty in the international market. If this measure is signed into law, it could further erode foreign investors' confidence in the U.S. market.
``This revenge tax action will increase economic uncertainty. This will stop foreign CEOs from investing – President Trump says that's what he wants. This means wild economic volatility this year, stock market declines, reduced stability and greater recession opportunities.
“Every few days we see stability in abuse of American power, more self-harm, and it looks like it will raise prices and slow down the economy.
Under the provision, certain foreign governments and international businesses may face an additional 20% tax, which will apply to non-U.S. entities that earn income from U.S. sources, including interest, dividends and royalties.
Taxes will gradually hike at a rate of 5% per year.
This will also affect profits from U.S. locations, which are transferred to foreign parent companies, and revenue from selling U.S. real estate through designated "bad actors." Trusts, global bases and partnerships with passive income may also be affected.
However, foreign pension funds and charitable legislation has built-in exceptions. This tax applies only to countries designated by the U.S. Treasury Department as "discriminatory." Unmarked countries will not be affected.
Jason Smith, chairman of the House Roads and Means Committee, from Republican Missouri, said that while the provision could be used as an effective tool for retaliation, “hope will never take effect.”
According to data from the Joint Tax Committee on Nonpartisan Taxation, the measure could generate $116.3 billion in revenue over the next decade. However, in the long run, this will also reduce tax revenue, which will also reduce $12.9 billion in 2033 and mid-2034.
The government's ever-changing trade strategy has led to a climate of legal struggles, policy reversals and unpredictability, which has left companies hesitant to develop long-term plans.
Companies like toy maker Mattel and automaker Stellantis have suspended financial guidance due to the turbulent nature of U.S. tariff policies.
These policies also help consumers fluctuate their confidence. Confidence fell to a 13-year low when Trump announced a series of broad tariffs on trading partners on April 2, which he called “liberation day”, until the government rebounded after the implementation of the tariffs.
Analysts warn that rules such as the “revenge tax” could prevent foreign investment and intensify development of partnerships.
“If you've got the headwinds of an extra withholding tax that starts at an extra 5 percent (and) moves up to 20 percent over the subsequent four years, I think (investors would) have second thoughts. In terms of optimising your investment strategy, you'd have a slightly smaller allocation to the US,” Chris Turner, the global head of markets and regional head of research for the United Kingdom and Europe at ING, a financial services company, told Al Jazeera.
There is already evidence that some economies are beginning to diversify from the United States. Canada, for example, has increased trade with Europe and Asia. Trump's trade policy is also seen as a factor in foreign governments' departure from U.S. Treasury bonds, while the European Central Bank continues to promote the euro as a competitive global reserve currency.
The measure adds another mechanism to the Trump administration’s broader trade strategy, which relies heavily on tariffs even if many face legal scrutiny.
Last week, the U.S. Court of International Trade blocked global tariffs enacted by the government under the 1977 International Emergency Economic Powers Act. As the legal battle unfolds, the federal district court temporarily suspends law enforcement in the country.
Experts believe many of these tariffs may not be subject to judicial scrutiny.
Greg Shaffer, a law professor at Georgetown University, told Al Jazeera that “no regulations can impose internationally much-needed international tariffs through the International Emergency Economic Powers Act.” As the court said, if there were such regulations, it would be unconstitutional because the Constitution provided responsibility for Congress. ”
However, the ruling did not involve tariffs on aluminum, steel and automobiles, which belong to different legal basis - the Trade Expansion Act of 1962. Under the regulations, Trump recently announced plans to raise these tariffs to 50% of most imports.