Section 899 raises fears of capital flight, threatens appeal of US assets
A sweeping new tax proposal championed by US President Donald Trump is sending shockwaves through financial markets, as Wall Street warns the legislation could repel foreign investment and erode confidence in US capital markets.
The “One Big Beautiful Bill Act,” which passed the House of Representatives last week and now heads to the Senate, includes a contentious provision—Section 899—that would empower the US to impose escalating taxes on investors from countries it deems to have “discriminatory” tax policies targeting American firms.
Under the plan, investors from such nations could face an additional 5 percentage points of tax on US income each year, up to a total increase of 20%. The bill specifically targets countries with digital services taxes and other levies seen as disproportionately affecting US tech giants like Google, Amazon, and Apple.
“If passed, this would represent the most dramatic shift in the treatment of foreign capital in the US in decades,” Deutsche Bank strategist George Saravelos warned, describing it as the “weaponization of US capital markets into law.”
Impact on foreign holders of US assets
The measure could apply to a wide range of international investors, including sovereign wealth funds, companies with US operations, and even foreign central banks that hold US government bonds. France and Germany, for instance, collectively hold nearly US$475bn in US Treasuries, and Australia’s public medicine subsidy scheme has also drawn scrutiny from US pharmaceutical interests.
Analysts say the tax could reduce the appeal of US assets, especially government debt. “The de facto yield on US Treasuries would drop by nearly 100 basis points,” said Saravelos, adding that capital outflows could increase pressure on the US dollar and complicate efforts to finance the federal deficit.
Large asset managers and foreign investors are already expressing concern. “Our foreign clients are calling us panicked about this,” one managing director at a major bond fund told the Financial Times. “It’s not totally clear whether Treasury holdings will be taxed, but investors are assuming they will be.”
Business leaders and banks raise alarms
Investment banks including JPMorgan and Morgan Stanley have flagged significant risks. “This provision disincentivises foreign investment,” said analysts at Morgan Stanley, while JPMorgan noted it could affect both US and foreign corporations. The Investment Company Institute has called for the bill to be “more targeted” to avoid discouraging beneficial capital inflows.
Companies with major US operations but domiciled abroad—such as InterContinental Hotels and Compass Group—could face heavier tax burdens, potentially diminishing earnings and investor returns.
GOP defends the move as reciprocal pressure
Republican tax chief Rep. Jason Smith defended the provision as a response to foreign countries “sucking away billions” from US firms. “This is a way to help put them in check,” he said, adding that it was aimed at restoring fairness and deterring punitive foreign tax regimes.
But critics warn the fallout could be broader. “It punishes the very people whose capital keeps American businesses growing, whose investments fund US debt, and whose companies employ millions of US workers,” said Nigel Green, CEO of deVere Group.
