A key provision in President Donald Trump’s tax reform bill could discourage foreign companies from investing in the United States.
Although Trump often highlights trillions of dollars in foreign investments coming into the country, the House-approved legislation includes a clause, known as Section 899, that allows the U.S. government to tax foreign-owned companies and investors from countries it deems impose “unfair foreign taxes” on American businesses.
This measure could lead international firms to hesitate or avoid expanding in the U.S., fearing heavy tax penalties. The Senate now holds the decision on this provision, sparking debate over its potential effects on the economy and job market.
An analysis by the Global Business Alliance, which represents major global companies like Toyota and Nestlé, warns that Section 899 could cost the U.S. 360,000 jobs and reduce the gross domestic product by $55 billion annually over the next decade. The tax could cut about one-third of the economic growth expected from the overall tax cuts passed by Congress.
Jonathan Samford, president of the Global Business Alliance, said the tax is meant to retaliate against foreign governments but ultimately harms American workers, especially in states like North Carolina, South Carolina, Indiana, Tennessee, and Texas.
Republican Representative Jason Smith defends the provision, saying it protects U.S. companies by pressuring countries with unfair tax rules to change their policies. He urges the Senate to pass the bill quickly to shield American businesses from unfair foreign tax practices.
However, fund managers and financial groups like the Investment Company Institute warn that Section 899 could trigger foreign investors to pull money out of U.S. stock markets. This could hurt both American companies and investors, as foreign investment is a key driver of growth in U.S. capital markets.
Experts also note uncertainty about how the tax would be applied and how other countries might respond. The tax could reach rates as high as 30% on profits of foreign companies, depending on the U.S. government’s judgment of foreign tax fairness. Some foreign investors, including governments and central banks holding U.S. debt, could also be affected, raising concerns about broader financial impacts.
Chye-Ching Huang of New York University calls Section 899 a risky strategy that could damage businesses, workers, and consumers while trying to protect U.S. multinationals from shifting profits abroad.
The potential job losses could have political consequences, especially in states important to Trump’s 2024 coalition. The Global Business Alliance estimates job losses of over 44,000 in Florida, nearly 28,000 in Pennsylvania, and significant numbers in North Carolina and Michigan.
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