(I doubt his sanity – I don't think this will really lead to a reduction in the U.S. debt, but rather to investors shifting away from the U.S. elsewhere)
....
* Trump's plan for a retaliatory tax on foreign investors: *
1. Name and Essence of the Proposal
* "Revenge tax" or "Section 899": This refers to a proposed provision within a broader tax bill ("One Big Beautiful Bill" - OBBB) that would allow the U.S. to impose additional taxes on individuals and entities from countries that, according to the Trump administration, levy "unfair" taxes (e.g., digital taxes or profit-shifting taxes) on American companies and citizens.
* Objective: To retaliate against what the U.S. considers discriminatory tax practices by other countries and to bolster American tax sovereignty.
2. Who and What Would Be Affected
* Foreign Investors: It would impact foreign individuals, corporations, governments, and sovereign wealth funds with tax domiciles in countries designated as imposing "unfair" taxes. This would include most of the U.S.'s largest trading partners, such as European Union countries, Canada, Australia, the United Kingdom, and South Korea.
* Types of Income: It would affect dividends, royalties, rent, and other forms of investment income originating from the U.S. Furthermore, it could also apply to profits of U.S. branches of foreign companies that are repatriated to their parent companies abroad, and income from the sale of U.S. real estate.
* Exemptions: The law would likely include exemptions for foreign pension funds and charitable organizations.
* Phased Implementation: The tax rate would increase by 5% annually for four years, resulting in a total tax increase of *** 20% above the existing rate.***
3. Potential Impacts
* Deterrence of Foreign Investment: Higher taxes would reduce after-tax returns for foreign investors, potentially discouraging foreign investment in U.S. assets.
* Market Impact: This could affect stock markets, especially dividend-paying stocks, and also income-generating real estate investments.
* Dollar Weakening: During a time of a weak U.S. dollar, the timing of this announcement could accelerate capital outflow.
* Reciprocal Reactions: Other countries would likely not remain idle and could implement their own retaliatory taxes or other trade measures, leading to further fragmentation of the global economic order.
* Escalation of Trade Wars: The provision could escalate trade wars, extending them from goods to services.
* Uncertainty for Businesses: Even if the tax were never imposed, the proposal itself could challenge the fundamental openness of the American system and cool investments.
4. Current Status and Outlook
* Bill in the Senate: The proposed tax bill, including the "Section 899" provision, is currently in the Senate, where it may undergo revisions.
* Wall Street Concerns: CEOs on Wall Street have expressed concerns about Trump's chaotic tariffs and other economic policies, which are creating uncertainty in global markets.
* Recession Forecasts: Some analyses, such as from Moody's Analytics, suggest scenarios ranging from mild to deep recession depending on the duration of tariffs and retaliatory measures.
* Impact on Households: Current tariffs and proposed taxes could lead to an increase in the average tax burden for American households.
Summary:
Trump's proposed "revenge tax" on foreign investors is a significant issue that, if passed, could have far-reaching implications for global trade, investment, and financial markets. It raises concerns about the escalation of trade wars and worsening economic instability. Its fate depends on the ongoing legislative process in the Senate and future political decisions.
