Business lobbyists are working to kill a measure in the Republican tax policy legislation that would punish companies based in countries that try to collect new taxes from American firms.
The push comes as Senate Republicans are preparing to unveil their domestic policy bill on Monday, which will ultimately need to be passed and merged with the legislation that the House passed last month. That bill imposes a so-called revenge tax on foreign companies that try to enforce the terms of a 2021 global minimum tax agreement or impose digital services taxes on American technology companies.
The legislation would substantially increase the tax bills for many foreign companies that operate in the United States, raising more than $100 billion over a decade. Critics argue that the provision would chill foreign investment at a time when the Trump administration is trying to attract international money.
“I think the president has been pretty unequivocal on where he stands on wanting more investment into the U.S. from international companies,” said Jonathan Samford, chief executive of the Global Business Alliance, which lobbies on behalf of international businesses in the U.S.
Mr. Samford added that the measure “directly contradicts the president’s investment vision.”
The legislation is poised to reignite international tax and trade wars that have been on hiatus as policymakers around the world grapple with how to overhaul the global tax system. It has also stoked anxiety among Wall Street investors and is expected to be a topic of discussion as leaders of the Group of 7 countries gather in Canada this week for a summit.
Since taking office, President Trump has made clear that he wants nothing to do with a 2021 deal brokered by the Biden administration that aimed to rewrite the rules of how the world’s largest companies would be taxed around the globe. That deal, which was agreed to by the G7, created a new global minimum tax rate of at least 15 percent that companies would have to pay, regardless of their headquarter location. The aim was to prevent countries from lowering their tax rates as a way to attract multinational corporations, creating a “race to the bottom” in taxation that left nations with fiscal shortfalls.
A measure tucked in the One Big Beautiful Bill Act would increase tax rates on such companies by as much as 20 percentage points over time if their headquarters were in “discriminatory foreign countries” with “unfair foreign taxes.” The bill defines that broadly, giving the United States discretion over how and when it could impose retaliation taxes on foreign firms.
Much of the angst about the provision is an overarching fear that it will deter foreign investment at exactly the moment that the United States would value it most.
Appetite for U.S. assets has already taken a hit since Mr. Trump unleashed tariffs on virtually all of America’s trading partners. New levies are still being added, while others are being scaled back, keeping foreign investors on edge about whether to increase their exposure to U.S. capital markets.
These jitters have also emerged at a time when debt levels are set to soar, stoking fears that investors will demand much more compensation in the form of higher yields to hold U.S. government bonds.
“The context is important,” said James Lucier, a managing director at Capital Alpha Partners. “It’s right for people to be nervous.”
Don Schneider, deputy head of U.S. policy at Piper Sandler, warned that the provision could also deter foreign direct investment as global companies look to direct their money elsewhere.
“Trump wants onshoring, and now if we’re going to penalize people who are doing the onshoring or the foreign direct investment in the U.S., it’s counter to his goal,” he said.
According to the Tax Foundation, the provision would raise taxes on countries that account for roughly 80 percent of all foreign direct investment into the United States.
The Global Business Alliance estimates that the tax measure, known as Section 899, could cost the United States 700,000 jobs over time and reduce gross domestic product by $100 billion annually. More than 70 of the group’s members traveled to Washington last week to make their case to lawmakers. The group includes big international companies that operate in the United States such as Unilever, L’Oréal USA and Michelin.
Critics of the retaliatory tax recognize that something should be done to stop countries from placing what they acknowledge are discriminatory taxes on U.S. businesses. They also concede that past efforts to cudgel countries into dropping these levies have not worked. But they argue that there are more streamlined ways with fewer unintended consequences than what the Republican provision proposes.
The Investment Company Institute, which represents U.S.-based fund managers, has called on Republican lawmakers to carve out passive investment income, such as dividends, rent and royalties. Interest on Treasury securities is already exempt.
In a letter to Senator Mike Crapo, the chair of the Senate Finance Committee, which was reviewed by The New York Times, the group warned that its members would be “collateral damage.”
“In order to avoid the impact of section 899, portfolio investors are likely to retreat quickly from U.S. equities, leading to capital outflows from the United States,” the ICI wrote. “If sustained selling by foreign investors depresses U.S. equity markets, this would harm both U.S. companies and investors.”
Mr. Lucier said the blowback could be contained if the provision was more conditional in nature rather than an “automatic sledgehammer that comes down.” If the Treasury Secretary had some discretion to modify or waive the tax hike, that could soothe Wall Street’s worries.
There is also support for the provision to be gradually implemented over a number of years, giving countries time to work out deals.
The Trump administration is including concerns about digital services taxes and other international tax issues in its trade negotiations with dozens of countries. It has downplayed suggestions that the tax that Congress is considering will scare off foreign investment and maintains that lower taxes in the United States and deregulation initiatives will continue to make America attractive.
“Much of the pushback is coming from overseas companies, and overseas companies are worried that their countries may try to usurp U.S. authority,” Treasury Secretary Scott Bessent said at a House Ways and Means Committee hearing last week. “This is a fiscal bill, not a revenge bill.”
Alan Rappeport is an economic policy reporter for The Times, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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