Investor anxiety over ‘revenge tax’ is overblown, Barclays says

A controversial provision in President Donald Trump’s tax-and-spending bill aimed at penalizing countries with “unfair” tax regimes is unlikely to disrupt U.S. bond and stock markets, according to Barclays Capital.

Dubbed a “revenge tax” by the finance community, Section 899 of the budget bill calls for increasing levies for individuals and companies whose home countries’ tax policies the U.S. deems “discriminatory.” The proposal – which received House approval in May and is now under consideration in the Senate as part of the so-called One, Big Beautiful Bill — has raised concerns on Wall Street that it may drive away foreign investors at a time when their confidence in U.S. capital markets has already been shaken by the Trump administration’s policies. 

That’s not the view of Barclays analyst Michael McLean, who said the provision shouldn’t impact foreign investors’ interest income or capital gains earned from the U.S. debt securities, such as Treasuries and corporate bonds. That’s because the provision doesn’t appear to eliminate the existing portfolio interest exemption, which allows overseas investors to earn interest without paying withholding taxes, he said. 

“Section 899 should not make U.S. securities uninvestable for foreign investors or cause major disruption to US equity or bond markets,” wrote McLean, a U.S. public policy analyst at Barclays, in a report. He warned, however, that the provision may “significantly” increase taxes on the US operations of foreign multinational companies.

While most analysts agree that the tax exemption for non-U.S. bond investors remains intact under Section 899 — as suggested by a footnote in a congressional report related to the bill — they have urged lawmakers to make the point more explicitly. In addition, the provision is also ambiguous about whether foreign central banks would face a new withholding tax according to analysts at Goldman Sachs Group Inc.

Barclays’s McLean said Section 899 is likely to be included in the final version of the reconciliation bill. But the Senate may make some “technical” changes to clarify the draft and could delay its implementation by a year, until 2027, he wrote.

Senate Majority Leader John Thune has said that Republican lawmakers will examine the potential impact of the provision before passing the measure.