Michael Rapoport (BTAX), Liz Capo McCormick and Emily Birnbaum

Fri, May 30, 2025, 11:29 AM4 min read

(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.

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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.”