U.S. Reps. Brad Sherman (D-CA) and Victoria Spartz (R-IN) introduced legislation that would end the capital gains tax break for Americans who invest in stocks from China, Russia, and other adversarial nations.
The No Capital Gains Allowance for American Adversaries Act would eliminate the capital gains tax break for investments in companies based in China, Russia, Belarus, Iran, and North Korea. Further, it would get rid of a related tax break, the “step-up in basis” at death, for investments in such companies. The SEC would require disclosure that no tax breaks are available for these stocks. Reps. Lloyd Doggett (D-TX) and Bill Foster (D-IL) are also sponsors of the bill, along with Sherman and Spartz.
It is one of four bills introduced by Sherman and Spartz that address risks of investing in China.
One of them is the China Risk Reporting Act, which would require publicly traded companies to discuss in their annual reports: (1) the degree to which the company is dependent upon China and the risks China poses, such as supply chain disruptions, intellectual property theft, or nationalization of assets, and (2) the steps the company has taken to reduce its China risk.
Another is the PRC Military and Human Rights Capital Markets Sanctions Act, which would prohibit Americans from investing in the stock of companies that appear on sanctions lists or have an affiliate on the sanctions list.
Finally, the No China in Index Funds Act would keep Chinese stocks out of index mutual funds.
“It makes no sense to forgo U.S. tax dollars to encourage Americans to invest in China’s economy. It’s also unfair, because China provides tax incentives to Chinese investors but not to those who invest in American stocks. The package of bills also requires American public companies to describe their China risk, and steps they are taking to reduce it. Another bill prohibits buying stocks of companies that are such an anathema that we already prohibit buying their products. Finally, we keep Chinese stocks out of index funds, because those funds do no research into the risks these companies pose,” Sherman said.
Sherman and Spartz are also the co-chairs of the bipartisan CPA Caucus.
“As a former Big 4 auditor of multinational publicly traded companies, I understand the risks to financial markets and American investors posed by the lack of transparency and proper auditing of Chinese operations,” Congresswoman Spartz said. “Congress has a duty to the American people to protect their hard-earned money from foreign adversaries like China by demanding transparency and eliminating perverse incentives,” Spartz said.