It's being called President Donald Trump's "revenge tax." The GOP budget bill currently stuck in the Senate would create a new levy of up to 20% for some foreign companies operating in the U.S., a move critics say would deter foreign investment at a critical moment in American economic history.
Why is the provision called a "revenge" tax? Because it would be used to "punish companies based in countries that try to collect new taxes from American firms," said The New York Times. That includes nations that levy a 15% "global minimum tax" under an international agreement the Biden administration helped broker in 2021, as well as countries that tax digital services provided by U.S. tech companies. But foreign companies might decide not to put their money into America if it means they might run afoul of the revenge tax. That "directly contradicts the president's investment vision" of bringing jobs and manufacturing back to America, said Jonathan Samford, the CEO of the Global Business Alliance. Business lobbyists are in a "scramble" to kill the tax, said the Times.
The purpose of the tax is to "intimidate, not to raise revenue," said The Economist. The effects would be counterproductive. The Joint Committee on Taxation, a watchdog group, found that the tax would actually cut into government revenues by "scaring off foreign investors and therefore lowering American asset prices." And it sends a signal. The Trump administration's "protectionist logic" does not just apply to goods and services provided by other countries but also to "capital flows." That is dangerous territory for a president who has "already made investing in America a riskier bet."
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Foreign countries have been "seeking ways to pilfer our tax base" for years, said Rep. Ron Estes (R-Kan.) at Bloomberg Tax. The global minimum tax would "erode our tax base" while giving other countries the "ability to target and tax U.S.-owned companies." Taxing countries that take aim at U.S. companies "isn't 'revenge,'" but it does allow the federal government to "advocate for U.S. companies and workers."
Escaping the revenge tax "is simple," said The Wall Street Journal editorial board. If foreign governments do not like how the tax might affect their businesses and investors, they can "stop doing these things" that trigger its implementation. That would include "scrapping" the digital services tax and reforming the global minimum tax to exclude corporate revenue taxed by the United States. Foreign governments "know exactly what to do to spare themselves."
What next?
The budget measure would give the Trump administration new taxing authority just as "courts are already debating the legality of the sweeping tariffs" the White House has imposed on global trading, said MarketWatch. Some analysts say the logic of mutually assured destruction is at play. The hope behind creating a revenge tax is that it "will never be applied," said Morgan Stanley credit strategist Michael Zezas. But that hope may not be sound — after all, the White House, said MarketWatch, has already "proved willing to risk disrupting facets of the globalized economy."
