Obscure tax item in Trump's Bill alarms Wall Street

Analysts fear the 'revenge' measure could further drive away foreign investors

- 

NEW YORK - Buried deep in the more than 1,000-page tax and spending Bill that President Donald Trump is muscling through Congress is an obscure tax measure that is setting off alarms on Wall Street and beyond.

The item — introduced in legislation that passed the House last week as Section 899 and titled "Enforcement Of Remedies Against Unfair Foreign Taxes" — calls for, among other things, increasing tax rates for individuals and companies from countries whose tax policies the US deems "discriminatory". This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets.

Cloaked in technicalities, the implication of the "revenge" measure, as it is quickly becoming known, is clear to analysts: If signed into law, it would further drive away foreign investors at a time when their once ironclad confidence in Treasury bonds and other US assets has already been shaken by Mr. Trump's erratic trade policies and the nation's deteriorating fiscal accounts.

"We're already dealing with a market where Treasuries, to foreign investors, probably aren't the most attractive investment," said Mr. Michael Brown, a strategist at Pepperstone Group. Mr. Brown said he received so many inquiries from concerned clients that he quickly put together a report breaking down the measure. "If you're now talking about massively unfavorable tax treatment, then it's just another reason to stay away."

Among those potentially affected: institutional investors including sovereign wealth funds, pension funds and even government entities, as well as retail investors and businesses with US assets.