Wall Street is raising alarm over a largely unnoticed clause in the budget bill championed by former President Donald Trump. Section 899, tucked into the measure that cleared the House of Representatives last week, would let Washington impose extra taxes on foreign investors in the United States.
Under Section 899, the government could impose higher taxes on companies and investors from nations it labels as having “punitive tax policies.” That would include U.S. firms with overseas owners, international corporations operating American branches, and individual foreign investors. Critics warn it could unsettle markets and harm American industry.
The goal is to counter what the U.S. regards as unfair tariffs abroad, but opponents say the timing could not be worse.
Greg Peters, co-chief investment officer at PGIM Fixed Income, described the change as “a market-spooking event, hitting already fragile confidence, particularly from foreign investors.” He added, “It’s all self-inflicted wounds at a time when you have a lot of debt that needs to get financed here. So the timing is really quite poor.”
A senior executive at a major Wall Street bank shared Peters’s unease. “This is one of the more worrisome ideas to have come out of DC this year,” the executive said. “If it goes forward, it will definitely cool foreign investment in the US.”
Analysts at Morgan Stanley noted that Section 899 would likely put downward pressure on the dollar and “disincentivise foreign investment.” JPMorgan, meanwhile, pointed out that the provision carries “significant implications for both US and foreign corporations.”
Countries affected by Section 899 may include Australia, Canada, the UK, and EU countries
According to law firm Davis Polk, most European Union countries, the United Kingdom, Australia, Canada, and others would fall under the scope of Section 899. For these foreign investors, the new rule would raise taxes on dividends and interest from U.S. stocks and certain corporate bonds by five percentage points each year over a four-year span. Sovereign wealth funds, which now enjoy an exemption on their American portfolio holdings, would also lose that benefit.
Jonathan Samford, president of the Global Business Alliance, warned that the impact would extend far beyond boardrooms. “This provision is not going to impact bureaucrats in Paris or London. It’s going to impact American workers in Paris, Kentucky, and London, Ohio,” he said.
Tim Adams, chief executive of the Institute of International Finance, which represents 400 of the world’s largest banks and financial institutions, called the move “counter-productive.”
It is unclear whether the extra tax would extend to U.S. Treasury debt
Currently, interest on Treasury securities is usually tax-exempt for foreign holders. Imposing taxes on those payouts would mark a dramatic shift in policy. “
Section 899 is legally ambiguous regarding a potential tax on Treasuries,” said Lewis Alexander, chief economic strategist at hedge fund Rokos Capital Management. “Taxing Treasuries could be counter-productive as any potential revenues likely would be outweighed by a resulting increase in borrowing costs as investors sell the debt.”
Even if Treasuries escape direct taxation, the provision adds another layer of concern for international holders of U.S. debt. Many of these investors are already uneasy about America’s growing deficit and shifting trade tariffs. According to The Financial Times, a managing director at a large U.S. bond fund reported receiving anxious calls from foreign clients. “It’s not totally clear whether Treasury holdings will be taxed, but our foreign investors are currently assuming they will be,” the director said.
With foreign investment already retreating—partly a reaction to earlier tariff measures—Section 899 could further erode overseas demand for American assets.
