Congress looks to combat China with Taiwan provision in tax deal

Architects of a bipartisan agreement working through Congress that centers on expanding child tax credits and reviving Trump-era business tax cuts say a provision involving Taiwan is crucial to combating China.

Taiwanese residents who conduct U.S. business would have their taxes on cross-border investments reduced, a move that risks further alienating China as Beijing threatens armed conflict to one day reclaim the Indo-Pacific nation it considers lost territory.

“The U.S.-Taiwan relationship is critically important to the health of American workers and businesses, as well as our national security and the ability to defend against China’s malign influence in the Indo-Pacific,” said House Ways and Means Committee Chairman Jason Smith, Missouri Republican.

The committee passed the broader tax deal, which includes the Taiwan bill, 40-3 last week. The full chamber could vote on it as early as next week before going to the Senate.

Proponents say it would reduce America’s dependence on China and boost domestic competitiveness.

Taiwanese foreign direct investment in the U.S. topped $16 billion in 2022, and trade was $161 billion in goods and services, according to the Office of the U.S. Trade Representative. House Ways and Means said that’s led to more than 22,000 U.S. jobs and $185 million in U.S. research expenditures by Taiwanese firms.

Groups with U.S.-Taiwan business interests and government leaders in Taipei lauded the tax deal.

Although not a formal tax treaty that the U.S. has with dozens of other countries, the Taiwan provision would mean extending similar tax benefits. Taiwan has been self-governed since 1949, but China still claims the island 100 miles off its southeastern coast as part of its territory.

Senate Foreign Relations Committee Chairman Ben Cardin, whose panel crafted the Taiwanese tax portion in conjunction with the Senate Finance Committee, said China’s dispute over the country had to be top of mind for U.S. tax policy writers.

“Because of its legal status, there’s some disagreement as to whether we could do a tax treaty or not,” the Maryland Democrat said. “They’re now calling it a tax agreement.”