Sherman to Introduce Legislation to Eliminate Capital Gains Tax Breaks for Investments in China, Russia

WASHINGTON, D.C. – Today, Congressman Brad Sherman (CA-32) released a draft of the No Capital Gains Allowance for American Adversaries Act, legislation that would exclude investments in China, Russia, Belarus, and Iran from eligibility for lower capital gains tax rates. Sherman is currently recruiting cosponsors for the bill.

"Lower tax rates for capital gains on stocks and other assets are designed to incentivize Americans to make investments that grow our economy. Yet investments made in companies abroad – even in nations undermining U.S. national security interests – are still able to receive this tax incentive," said Congressman Sherman. "It is time to end U.S. tax subsidies for investments that boost adversarial nations' economies."

It is entirely reasonable for the U.S. to provide incentives for domestic investment that are not available on certain foreign investments. According to a comparative analysis of capital gains tax rates by the Law Library of Congress, many countries have investment incentives not applicable to some foreign investments. China provides investment incentives through its tax code, but foreign investments are eligible only with the pre-approval of the Chinese government.

The No Capital Gains Allowance for American Adversaries Act would amend the U.S. Internal Revenue Code to:

1. Treat capital gains on all Chinese, Russian, Belarusian, and Iranian stocks as ordinary income. Such investments would then not be eligible for the lower capital gains tax rates, and would be taxed as high as 37%, rather than 15 to 20% for capital gains.

2. Eliminate the "step-up in basis" for Chinese, Russian, Belarusian, and Iranian assets inherited at death. The "step-up in basis" reduces an heir's tax liability by treating the assets as "costing" its date-of-death value – so increases in value prior to the date-of-death go untaxed.

For a discussion draft of the No Capital Gains Allowance for American Adversaries Act, click here.

###