American fund managers are raising alarms in Congress about a provision in President Trump’s tax bill. They worry this could prompt foreign investors to withdraw money from the U.S. quickly.
This provision, part of the "One Big Beautiful Bill Act," targets foreign-owned firms from countries that impose "unfair" taxes. Currently under Senate review, it could hit investors from the European Union, the UK, Canada, Australia, and Switzerland. The proposed Section 899 is intended to introduce retaliatory tax measures against these nations. If enacted, it would levy a tax starting at 5%, increasing annually to a maximum of 20%. This could significantly lower returns for foreign investors in U.S. equities.
The Investment Company Institute (ICI), which advocates for fund managers in the U.S., warns that the bill’s current form could unintentionally harm U.S. markets. They argue that the fund management industry, which has invested about $18 trillion in U.S. stocks, could be "collateral damage" if foreign investors pull out. In a letter to Senator Mike Crapo, chairman of the Senate Finance Committee, the ICI emphasized that the provision could deter foreign investments in U.S. mutual funds and ETFs.
The concern is that section 899 would penalize funds and shareholders alike by taxing passive income from U.S. investments. This could lead to significant losses for investment management firms if foreign investors decide to withdraw their money.
According to data from Apollo Global Management, foreign investors own approximately $19 trillion in U.S. stock markets, $7 trillion in government bonds, and $5 trillion in credit. This highlights how intertwined the U.S. and foreign markets have become.
Tax experts predict that Section 899 would primarily affect earnings paid out to foreign investors, rather than capital gains. Yuri Khodjamirian, the chief investment officer for Tema ETFs, noted that investors focused on dividend-yielding U.S. stocks would reconsider their holdings if they face additional taxes. He pointed out that U.S. companies, especially those in the S&P 500, typically offer low dividend yields, relying more on share buybacks.
Overall, while the intention behind Section 899 may be to protect U.S. business interests, the ICI argues that its implementation could drive foreign capital away from the U.S., potentially benefiting foreign equity markets instead. This shift could complicate future investments for both U.S. and global markets.
For further information on these tax implications, check out resources from the Investment Company Institute and read about foreign investor reactions.
Source link
Breaking News: Markets,Politics,Breaking News: Politics,Tema American Reshoring ETF,S&P 500 Index,United Kingdom,Donald Trump,United States,Markets,business news