What's a revenge tax?

Summary

Podcast Summary: "What's a Revenge Tax?" – The Indicator from Planet Money

Release Date: June 10, 2025
Host: Adrian Ma and Darian Woods
Produced by NPR

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Introduction

In the June 10, 2025 episode of The Indicator from Planet Money, hosts Adrian Ma and Darian Woods delve into two significant tax proposals embedded within the recently passed One Big Beautiful Bill Act. These proposals mark a potential shift in the United States' long-standing economic policies regarding global capital flows and international taxation.

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Capital Controls and the Shift in U.S. Policy

Historical Context and Policy Shift

The episode opens with Darian Woods illustrating the current state of U.S. capital flows using a toll booth metaphor. Unlike the lengthy checks for people and goods, money flows swiftly across borders with minimal scrutiny. This laissez-faire approach has positioned the U.S. as "the world's biggest tax haven," according to tax law professor Reuven Avionis from the University of Michigan ([00:42] Reuven Avionis).

Adrian Ma highlights that since the Reagan administration in the 1980s, the U.S. has championed the free movement of capital. However, the One Big Beautiful Bill Act introduces two new tax measures— a remittance tax and a revenge tax—that could dramatically alter this stance ([03:09] Reuven Avionis).

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Policy 1: Tax on Remittances

Overview of the Proposal

The first major policy under discussion is a proposed 3.5% tax on remittances—the money immigrants send to their home countries. This translates to $3.50 for every $100 sent abroad. Adrian Ma explains that while the specifics are still unclear, the rhetoric from the Republican-led House Committee on Ways and Means suggests the tax aims to reclaim funds from unauthorized immigrants ([03:53] Darian Woods).

Implications and Concerns

Reuven Avionis emphasizes the novelty of this tax: "This is a totally new form of tax that the United States has not tried before" ([04:05] Reuven Avionis). The potential benefits include increased revenue to help reduce the federal deficit. However, Avionis raises concerns about the broader intent, suggesting it may be designed to "discourage immigration in the first place" ([04:16] Adrian Ma).

Moreover, there are fears of tax evasion. Avionis warns that immigrants might resort to unregulated methods like cryptocurrency or physical cash transfers to bypass the tax, turning the U.S. into "similar to many other countries where crypto is a main way of avoiding government regulation and taxation" ([04:44] Reuven Avionis).

Impact on Receiving Countries

Darian Woods points out that a remittance tax would negatively affect countries that rely heavily on these funds. For instance, in Mexico, U.S. immigrants sent the equivalent of about $1,700 per household last year. A reduction in these remittances could financially strain families in poorer regions ([05:35] Darian Woods).

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Policy 2: The Revenge Tax

Defining the Revenge Tax

The second policy is the so-called "revenge tax," which targets certain foreign investors by imposing additional taxes on American dividends, profits, rents, royalties, and specific interest earned by these investors. Adrian Ma illustrates this with an example: a Canadian restaurant chain operating in the U.S. would face incremental taxes on its profits starting at 5%, increasing by 5% annually ([06:16] Darian Woods).

Rationale and Targeted Countries

The revenge tax is a retaliatory measure against countries like France and Canada, which have implemented digital services taxes on American tech giants such as Facebook and Google. These taxes are perceived as discriminatory because they disproportionately affect American companies ([07:24] Reuven Avionis).

Expert Perspectives and Potential Downsides

Kim Klossing, a UCLA tax law professor and former member of the U.S. Treasury under Biden, along with Jason Smith, Republican chair of the House Ways and Means Committee, weigh in on the proposal. Smith describes the measure as a deterrent against unfair taxation but acknowledges its potential economic disruptions ([09:44] Kim Klossing).

Reuven Avionis critiques the revenge tax as "pretty toothless" and warns it could invite stronger retaliation from other countries, ultimately failing to achieve its intended purpose ([10:13] Reuven Avionis). Additionally, Kim Klossing points out that less foreign investment could lead to higher interest rates, complicating the government's efforts to manage the growing national debt ([08:49] Adrian Ma).

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Broader Economic Implications

Impact on U.S. Investment and Economy

The proposed taxes signal a move towards economic isolationism, discouraging both international flows of goods and investments. Jason Smith warns that such isolationist policies are "not a recipe for prosperity," citing historical precedents where similar stances led to economic downturns ([08:24] Jason Smith).

Potential Loopholes and Enforcement Challenges

While the remittance tax could potentially be enforced through money transfer companies like Western Union and PayPal, Reuven Avionis notes that banks cannot easily circumvent the revenge tax by simply establishing new subsidiaries in the U.S. Nonetheless, the overall effectiveness of these taxes remains uncertain, given the possibility of legal challenges due to existing tax treaties ([09:03] Darian Woods and [10:02] Adrian Ma).

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Conclusion

The introduction of a remittance tax and a revenge tax within the One Big Beautiful Bill Act marks a significant departure from four decades of U.S. economic policy favoring free capital movement. While intended to increase federal revenue and retaliate against foreign tax policies perceived as unfair, these measures carry substantial risks. Experts like Reuven Avionis and Kim Klossing caution that the taxes could deter immigration, reduce foreign investment, invite international retaliation, and ultimately harm both the U.S. economy and families abroad reliant on remittances.

As Adrian Ma aptly summarizes through the toll booth analogy, "global money is going to start seeing a similar crackdown that people and goods have found recently," yet money's elusive nature may render these policies less effective than intended ([10:23] Darian Woods).

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Notable Quotes

• Reuven Avionis ([00:42]): "We've become, in a way, the world's biggest tax haven."
• Reuven Avionis ([03:21]): "Before the One Big Beautiful Bill act, we were really, really welcoming foreigners."
• Reuven Avionis ([04:05]): "This is a totally new form of tax that the United States has not tried before."
• Darian Woods ([09:03]): "There is one big exception though, banks which can't do that."
• Reuven Avionis ([10:13]): "It's pretty toothless, but to the extent that it has teeth, it just invites retaliation."
• Adrian Ma ([08:49]): "Kim says less foreign investment could mean higher interest rates. That's because you would need those higher interest rates to convince Americans to invest more in, say, treasury bonds."

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This episode of The Indicator from Planet Money provides a comprehensive exploration of the proposed remittance and revenge taxes, shedding light on their potential economic ramifications and the debates surrounding their implementation.

Transcript

[NPR]

NPR.

[Darian Woods]

Imagine a toll booth on the US Border. There are three checkpoints, one for people, one for goods and one for money. The line for people is long. You got visas and passports to check fingerprints. Questioning the line for goods is a little shorter. You've got freight containers with the odd biosecurity spot check. Now, some added tariff hassles, but the toll booth for money runs very swiftly. Money comes in and out of the country with barely a glance.

[Reuven Avionis]

We've become, in a way, the world's biggest tax haven.

[Adrian Ma]

Law professor Reuven Avionis says since the Reagan administration, the US has encouraged global money to flow freely. But two sections tucked away in the big spending bill going through Congress could disrupt that. A tax money immigrants send to their home countries and another measure that's been called a revenge tax.

[Reuven Avionis]

It's a massive reversal of the position that we've taken for many, many decades.

[Adrian Ma]

This is the indicator for Planet Money. I'm Adrian Ma.

[Darian Woods]

And I'm Darian Woods. Today on the show, taxes on global money, sometimes called capital controls. We explain the proposals and the one big beautiful Bill act, and we ask what this huge potential shift could mean for the US Economy.

[Kim Klossing]

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[NPR]

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[Darian Woods]

It's kind of been a bipartisan position for the last 40 years. Capital should be free to come and go in and out of the U.S. yeah, no, definitely.

[Reuven Avionis]

I mean, at least since the 1980s, since the Reagan administration, we've really encouraged foreign capital to come into the United States.

[Darian Woods]

Reuven Aviona is a tax law professor at the University of Michigan.

[Reuven Avionis]

Before the One Big Beautiful Bill act, we were really, really welcoming foreigners.

[Darian Woods]

Look, we really have to say One Big Beautiful Bill Act, Adrian, whether we like it or not.

[Adrian Ma]

Yeah. But Ruben says that welcoming environment could change if the Senate and the President sign off on what's in the bill. Let's start with the tax on immigrants sending money overseas, commonly known as remittances. It would be a 3.5% tax, or $3.50 for every hundred dollars that non citizens send.

[Darian Woods]

Now, would that apply to people on visas or green cards? That's unknown at this stage, but the rhetoric from the Republican led House Committee on Ways and Means has been that it's about clawing back money from unauthorised immigrants.

[Reuven Avionis]

This is a totally new form of tax that the United States has not tried before. And so there's a lot of details that are not clear.

[Adrian Ma]

So is a tax on remittances good for American citizens? Reuven says that's hard to answer. The increased revenue for the US Government will be a plus, a small way to help stem the federal deficit. But he thinks the whole intent is actually to discourage immigration in the first place. And if that happened, that would reduce the amount of revenue that could be raised from remittances. If immigration decreased, America would also lose out on that labor, the skills and the talent those people bring.

[Darian Woods]

Reuven also worries about people trying to evade the taxes. Immigrants might send cash through people physically traveling on planes instead. Or they might use less regulated cryptocurrency platforms.

[Reuven Avionis]

For example, in my mind, the US will become similar to many other countries where crypto is a main way of avoiding government regulation and taxation for, you know, at the very least, tax evasion. And that is a major reason why crypto is popular.

[Darian Woods]

Crypto can be tracked, but it'd be unrealistic to expect the US Government to trace every small transaction.

[Adrian Ma]

But under this bill, the US Government will enlist some help for plain old money transfers. Collecting this tax would be up to the money transfer companies like Western Union and PayPal, though associations representing them and many other financial companies are lobbying Washington to try and get the Senate to remove the proposed levy.

[Darian Woods]

A remittance tax would also harm receiving countries. Take Mexico. Last year, people in the US sent the equivalent of about one $1,700 for every household in Mexico. If immigrants in America send less money back home, that could financially harm many families in worse off places, including in some of the poorest areas on earth.

[Adrian Ma]

Now turning to the second big policy in the big beautiful spending bill is the so called revenge tax, which applies to certain foreign countries. Essentially it means the US Government would add new taxes on American dividends and profits, rents and royalties and some interest of these foreign investors.

[Darian Woods]

Yeah. So let's explain this with an example. Say I run a Canadian restaurant chain, Poutine Delight. That's a good name. So I have some Poutine Delight restaurants in the US and this revenge tax would mean I have to pay an additional tax on the profits I get from selling to my US customers. It might start at 5% and then that extra tax would go up to 10% the next year, 15% the year after that.

[Adrian Ma]

Oh, sounds more like poutine despondent.

[Darian Woods]

Yeah. Not great for spreading the gospel of cheese curds and gravy on fries.

[Adrian Ma]

So we've talked about certain countries, right? And here's where the revenge part comes in. Because which countries these actually are would be decided by the Treasury Secretary. See, they would determine if other countries governments have been taxing US companies unfairly. In international tax parlance, this is called discrimination.

[Reuven Avionis]

Discrimination in the tax context means that you're treating corporations from one country worse than your own corporations or worse than corporations from different countries. You're supposed to apply the tax law even handily to everybody.

[Darian Woods]

One example is the digital services taxes that countries like France and Canada are putting on platforms like Facebook and Google. France and Canada tax large digital platforms 3% of their ad and data revenue. There are some exceptions, but the taxes do mostly affect American companies. And so the Republican authors of this bill are thinking of a way to get back at the French and the Canadians and the other countries that have these and other kinds of taxes.

[Adrian Ma]

Reuven sees problems with the US Fighting back, though.

[Reuven Avionis]

I was just in Canada. Canadians love their digital services tax. They are very politically popular in these countries and therefore not very likely to be repealed.

[Adrian Ma]

Kim Klossing is a UCLA tax law professor and she was at the US treasury under the Biden administration.

[Jason Smith]

Yes, it's a very untested, unique proposal that I think risks damaging U.S. workers and U.S. businesses substantially.

[Darian Woods]

The President has, after all, said companies from other countries should build in America.

[Jason Smith]

So we're kind of pursuing isolationism with both hands. Right. We're discouraging international movements of goods and we're also discouraging the investment that might replace that. And as we know from looking at other countries, isolationism isn't a recipe for prosperity.

[Adrian Ma]

Kim says less foreign investment could mean higher interest rates. That's because you would need those higher interest rates to convince Americans to invest more in, say, treasury bonds. Not what the government wants when debt projections are going higher and higher.

[Darian Woods]

There is a potential way that overseas companies could invest in the US While avoiding the extra tax. Reuven Avionis sees the so called revenge tax as losing a lot of its bite when a company from, say, Canada again could simply start a new subsidiary in the U.S. putin Delight USA precisely. Different paperwork. American in name only. But they might avoid the tax. There is one big exception though, banks which can't do that.

[Adrian Ma]

We called and emailed Jason Smith, the Republican chair of the House Ways and Means Committee who helped draft the bill. He didn't get back to us by our deadline, but at a recent panel he described the measure as a way to deter other countries from taxing US Companies unfairly.

[Kim Klossing]

Put them in check so that they understand that if they do that to US businesses, there will be consequences for their actions. Hopefully it'll never take an effect.

[Darian Woods]

Hopefully it'll never take effect. So it sounds like Jason Smith understands that if these measures are implemented, they could be economically disruptive.

[Adrian Ma]

Yeah, not to mention vulnerable to legal challenge. The US Already has tax treaties with these countries, reuven Aviona says. It's unclear whether this law could override those.

[Reuven Avionis]

It's pretty toothless, but to the extent that it has teeth, it just invites retaliation. And the retaliation may have stronger teeth. So what have we achieved exactly?

[Darian Woods]

Going back to that tollbooth metaphor, if the Senate and president do pass these two policies, global money is going to start seeing a similar crackdown that people and goods have found recently. But money has a funny way of being able to slip through the cracks. This episode was produced by Cooper Cats 4 Kim with engineering by Kwesi Lee. It was fact checked by Cyril Juarez. Cake and Canon edits the show and the indicator is a production of npr.

[NPR]

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[Kim Klossing]

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