What a ‘revenge tax’ in Trump’s spending bill means for investors

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What a ‘revenge tax’ in Trump’s spending bill means for investors

WASHINGTON DC, UNITED STATES – MAY 30: United States President Donald Trump departs at the White House to U.S. Steel’s Irvin Works in West Mifflin, Pennsylvania in Washington D.C May 30, 2025.

Celal Gunes | Anadolu | Getty Images

As the Senate weighs President Donald Trump’s multi-trillion-dollar spending package, a lesser-known provision tucked into the House-approved bill has pushback from Wall Street.

The

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, known as Section 899, would allow the U.S. to add a new tax of up to 20% on foreigners with U.S. investments, including multinational companies operating in the U.S.

Some analysts call the provision a “revenge tax” due to its wording. It would apply to foreign entities if their home country imposes “unfair foreign taxes” against U.S. companies, according to the bill.

“Wall Street investors are shocked by [Section] 899 and apparently did not see it coming,” James Lucier, Capital Alpha Partners managing director, wrote in a June 5 analysis.

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If enacted as written, the provision could have “significant implications for the asset management industry,” including cross-border income earned by hedge funds, private equity funds and other entities, Ernst & Young

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.

Passive investment income could be subject to a higher U.S. withholding tax, as high as 50% in some cases, the company noted. Some analysts worry that could impact future investment.

The Investment Company Institute, which represents the asset management industry serving individual investors, warned in a

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that the provision is “written in a manner that could limit foreign investment to the U.S.”

But with details pending as the Senate assesses the bill, many experts are still weighing the potential impact — including who could be affected.

Here’s what investors need to know about Section 899.

How the ‘revenge tax’ could work

As drafted, Section 899 would allow the U.S. to hike existing levies for countries with “unfair foreign taxes” by 5% per year, capped at 20%.

Several kinds of tax fall under “unfair foreign taxes,” according to the provision. Those include the undertaxed profits rule, which is associated with part of the

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The second part of the measure would expand the so-called base erosion and anti-abuse tax, or BEAT, which aims to prevent corporations from shifting profits abroad to avoid taxes.

“Basically, all businesses that are operating in the U.S. from a foreign headquarters will face that,” said Daniel Bunn, president and CEO of the Tax Foundation. “It’s pretty expansive.”

The retaliatory measures would apply to

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from which the U.S. receives direct foreign investment, which could threaten or harm the U.S. economy, according to Bunn’s analysis.

Notably, the proposed taxes don’t apply to U.S. Treasuries or portfolio interest, according to the bill.

‘Strong priority’ for House Republicans

Section 899 still needs Senate approval, and it’s unclear how the provision could change amid alarm from Wall Street.

But the measure has “strong support” from others in the business community, and it’s a “strong priority” for Republican House Ways and Means Committee members, Capital Alpha Partners’ Lucier wrote.

House Ways and Means Committee Chairman Jason Smith, R-Mo., first

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in a May 2023 bill, and has been outspoken, along with other Republicans, against the global minimum tax.

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If enacted as drafted, Section 899 could raise an estimated

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, according to the Joint Committee on Taxation.

That could help fund other priorities in Trump’s mega-bill, and if removed, lawmakers may need to find the revenue elsewhere, Bunn said.

However, House Ways and Means Republicans may ultimately want foreign countries to adjust their tax policies before the new tax is imposed.

“If these countries withdraw these taxes and decide to behave, we will have achieved our goal,” Smith said in a

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