Submitted
Spartz
On Wednesday, co-chairs of the US. House CPA Caucus, Congresswoman Victoria Spartz (R-Ind.-05) and Congressman Brad Sherman (D-Calif.-32), announced the introduction of four pieces of legislation to mitigate the strategic, commercial, and national security threats posed by China to the American economy and financial markets.
This package of bills will end tax breaks for Chinese stocks, restrict sanctioned Chinese companies’ access to U.S. capital markets, increase transparency on risks to American corporations, and reduce exposure to these risks for retail investors and other Americans saving for retirement.
“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. I am proud to introduce with my co-chair of the CPA caucus, Congressman Sherman, a legislative package to protect public interest and the U.S. economy from the significant security threats posed by the Chinese Communist Party.”
“We provide the capital gains tax subsidy to encourage Americans to invest and build our economy,” said Congressman Sherman. “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.”
Each of these four bills address a different threat posed by China to our capital markets. The package of legislation includes:
No Capital Gains Allowance for American Adversaries Act
This bill would eliminate the capital gains tax break for investments in companies based in China, Russia, Belarus, Iran, and North Korea. It also eliminates a related tax break, the “step-up in basis” at death, for investments in such companies. The SEC will require disclosure that no tax breaks are available for these stocks.
China Risk Reporting Act
Investors deserve to know the degree to which the American and foreign companies they invest in are dependent upon China and the related risks.
This bill would require publicly traded companies that file any reports with the SEC 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.
This bill will force companies competing for capital to reduce their exposure to China. If China invades Taiwan, Congress should be able to impose sanctions, knowing American companies have insulated themselves from the rupture. Hopefully, this will deter such an invasion.
PRC Military and Human Rights Capital Markets Sanctions Act
A recent report identified 144 Chinese companies, or their affiliates, whose practices were so adverse to U.S. interests that it is illegal for Americans to buy their products. Most of these companies have been found to violate human rights. Others play an integral role in the China military-industrial complex. While buying the products of these companies is illegal, it is still legal to buy their stock.
This bill would prohibit Americans from investing in the stock of companies that appear on such sanctions lists or have an affiliate on the sanctions list.
No China in Index Funds Act
Index mutual funds minimize their expenses by simply investing in all the companies in a certain market sector, without looking closely at the individual companies. There are unique difficulties in evaluating the risks of investing in Chinese companies. Americans should not invest in these companies without carefully evaluating the risk.
This bill will keep these hard-to-evaluate Chinese stocks out of index mutual funds.
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Click here for more information on these bills.