Ending Capital Gains Tax Breaks for Investments in China and Russia: Sherman Proposes

California Congressman Brad Sherman introduced the “No Capital Gains Allowance for American Adversaries Act.” The plan removes capital gains tax benefits for investments in rivals like China, Russia, Belarus, and Iran. Congressman Sherman is aggressively seeking bill support from colleagues.

Photo from Congressman Brad Sherman

Proposal Targets Investments in Adversarial Nations, Urges National Security Alignment

The proposal challenges the current tax structure that lowers capital gains tax rates on investments, arguing that such incentives should not apply to investments in nations that threaten U.S. national security. Congressman Sherman noted that the current tax structure, which promotes economic growth, mistakenly subsidizes foreign investments, even in countries that may threaten U.S. interests.

The Internal Revenue Code would significantly alter under the No Capital Gains Allowance for American Adversaries Act. First, it would make Chinese, Russian, Belarusian, and Iranian stock capital gains ordinary income. This reclassification would expose such assets to higher capital gains tax rates of up to 37%, compared to 15 to 20%.

This proposal would eliminate the “step-up in basis” for inherited assets from enemy states. The “step-up in basis” provision decreases heirs’ tax obligation by valuing assets at their date-of-death value. Without this safeguard for assets from China, Russia, Belarus, and Iran, any value increase before death would be taxable.

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Congressman Sherman Pushes Distinction in Tax Code

Congressman Sherman said the U.S. must distinguish between local and foreign investments since other countries do so in their tax schemes. China requires government pre-approval for foreign ventures to receive tax incentives.

The No Capital Gains Allowance for American Adversaries Act actively aligns the U.S. tax code with national security. Congressman Sherman wants to reduce economic support for nations that threaten U.S. security and interests by addressing capital gains tax advantages for investments in rivals. The bill awaits congressional approval.

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