Ricketts Introduces Legislative Package to Protect American Way of Life from Communist China

WASHINGTON, D.C. – Today, U.S. Senator Pete Ricketts (R-NE) introduced a legislative package of four bills that would counter malicious efforts to disrupt American prosperity by Communist China and other adversaries. The package includes the No Capital Gains Allowance for Americans Adversaries Act, the PRC Military and Human Rights Capital Markets Sanctions Act, the No China in Index Funds Act, and the Protecting Endowments from our Adversaries Act (PEOAA). This legislative package limits the ability of adversaries like Communist China from taking advantage of America’s economic strength and tax benefits intended for Americans.

“Communist China is the greatest threat to the American way of life,” said Ricketts. ”Communist China is actively threatening a rules-based system that has maintained peace and prosperity for over 80 years. America’s markets are supposed to benefit Americans. We can’t allow our markets to fund our adversaries like Communist China.”

The No Capital Gains Allowance for Americans Adversaries Act would:

• Treat capital gains on all Chinese, Russian, Belarusian, Iranian, and North Korean stocks as ordinary income. Such investments would then not be eligible for the lower capital gains tax rates.
• Eliminate the “step-up in basis” for Chinese, Russian, Belarusian, Iranian, and North Korean assets inherited at death – which reduces an heir’s tax liability by ignoring gains that occurred before inheritance.
• Direct the Securities and Exchange Commission to maintain a public list of securities covered by this Act and require that sellers of covered securities disclosure to customers that sales of those securities will be treated as ordinary income.

The PRC Military and Human Rights Capital Markets Sanctions Act would:

• Direct the President to compile and maintain a single public list of sanctioned companies and their affiliates.
  • These lists include those that target human rights violators, including companies that utilize coerced labor in production, companies that proliferate dangerous technologies, and those that have connections to the Chinese military and intelligence services.
• Prevent U.S. persons from purchasing, selling, or holding:
  • A publicly-traded security issued by a sanctioned company or affiliate of the sanctioned company;
  • A publicly-traded security that is a derivative of a publicly issued security issued by a sanctioned company or affiliate of the sanctioned company;
  • A security that provides investment exposure to a publicly-traded security issued by a sanctioned company or affiliate of the sanctioned company.
• Give a U.S. person 180 days after enactment to divest from the prohibited securities.

The No China in Index Funds Act would:

• Prohibit index funds from investing in Chinese companies and require them to divest from such investments within 180 days after date of enactment.

The Protecting Endowments from Our Adversaries Act (PEOAA) would:

• Apply to private college and university endowments over $1,000,000,000
• Disincentivize endowments from investing (directly or indirectly) in adversarial entities that are on any of the following US Government Lists (USG):
  • Entity List
  • Military End User (MEU) List
  • Unverified List
  • FCC Covered List
• Impose a 50% excise tax on the principal investment at the time of acquisition if an endowment invests in a company that is listed.
• Impose a 100% excise tax on the realized gains derived from listed investments one year after an entity is listed.

BACKGROUND:

Other countries have investment incentives not applicable to some foreign investments. For instance, China provides investment incentives through its tax code, but foreign investments are eligible only with the pre-approval of the Chinese government.

Companies that have their business relations with the United States cut off or strictly restricted should not be allowed to sell securities in the U.S., or to U.S. persons, whether directly or indirectly through a mutual fund or ETF.

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.

University and college endowments are funds or assets donated to support various activities of the institution. These institutions often invest billions from their endowments into organizations and companies listed on the Department of Commerce’s Entity List. While maintaining a tax advantage, endowments can fund these entities even if they pose national security concerns.