Bill Overview
Title: DITCH Act
Description: This bill denies an organization a tax exemption if it holds any interest in a disqualified Chinese company or fails to timely transmit required annual reports. A disqualified Chinese company is any corporation incorporated in China, or that invests more than 10% of its stock in certain Chinese entities, including entities controlled by the Chinese Communist Party. The Department of the Treasury may grant organizations a waiver of the denial of the tax exemption under specified circumstances. Organizations that hold any interest in a disqualified Chinese company must file annual reports describing each interest held in the company, the period during which such interest was held, and whether the organization has been granted a waiver.
Sponsors: Sen. Hawley, Josh [R-MO]
Target Audience
Population: Organizations with tax-exempt status investing in Chinese companies
Estimated Size: 30000
- The legislation targets organizations, specifically those that are tax-exempt, such as charities, non-profits, and similar entities.
- The bill impacts organizations that have investments or holdings in corporations incorporated in China or that have significant investments in certain Chinese entities, particularly those connected to the Chinese Communist Party (CCP).
- Organizations failing to timely submit detailed annual reports about their holdings in affected Chinese companies will lose their tax-exempt status until compliance is met.
Reasoning
- The DITCH Act will primarily affect tax-exempt organizations engaging in international investment, especially those holding interests in Chinese companies. Many organizations might not face a direct impact due to limited or no investments in China.
- On average, we should expect that those who are impacted could see a meaningful, but not overwhelming, financial burden due to compliance costs or loss of advantageous tax positions.
- Various types of organizations will be impacted differently based on the scale of their investments in Chinese entities. Educational institutions and large non-profits might be most affected, whereas small, local non-profits are less likely to have such investments.
Simulated Interviews
CFO of a charitable foundation (New York, NY)
Age: 45 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 12/20
Statement of Opinion:
- Our foundation will need to review our investment strategy significantly.
- I think this policy will drive foundations to be more cautious with their international investments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 7 | 8 |
| Year 3 | 7 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
CEO of a tech-focused non-profit (San Francisco, CA)
Age: 35 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 15/20
Statement of Opinion:
- This Act will make our international investment operations more complex.
- I'm concerned about potential deterrents to overseas partnerships.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 8 |
| Year 3 | 6 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 8 | 9 |
| Year 20 | 8 | 9 |
Director of a university endowment (Chicago, IL)
Age: 50 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 20.0 years
Commonness: 10/20
Statement of Opinion:
- We already have compliance processes, but this adds another layer of requirements.
- Difficult to predict long-term effects on returns.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 9 |
| Year 2 | 8 | 9 |
| Year 3 | 8 | 9 |
| Year 5 | 8 | 9 |
| Year 10 | 8 | 9 |
| Year 20 | 9 | 9 |
Manager at a local arts organization (Los Angeles, CA)
Age: 29 | Gender: other
Wellbeing Before Policy: 5
Duration of Impact: 0.0 years
Commonness: 18/20
Statement of Opinion:
- I don't think this policy will change anything for our organization.
- We don't engage in any foreign investments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 6 | 5 |
CEO of a multi-national non-profit organization (Houston, TX)
Age: 60 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 20.0 years
Commonness: 7/20
Statement of Opinion:
- It complicates our operations due to our significant Chinese exposure.
- We may need to divest or restructure some portfolio allocations.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 8 |
| Year 2 | 6 | 8 |
| Year 3 | 7 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Policy analyst for a financial think-tank (Denver, CO)
Age: 42 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 14/20
Statement of Opinion:
- This policy is an important step towards ethical investing standards.
- There might be unintended consequences for some tax-exempt organizations.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 8 | 7 |
Investment advisor for a non-profit (Miami, FL)
Age: 38 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 11/20
Statement of Opinion:
- This will affect our current strategy.
- We'll have to reassess risk regarding our Asia portfolio.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 8 | 7 |
Executive Director of a wildlife conservation charity (Seattle, WA)
Age: 55 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 20/20
Statement of Opinion:
- Our organization won’t be impacted directly by this policy.
- Good to raise awareness about investment transparency.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 9 | 8 |
Chief Investment Officer at a private foundation (Boston, MA)
Age: 48 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 9/20
Statement of Opinion:
- We need additional resources to comply with new reporting requirements.
- Possible strategic shifts required in asset allocation.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 9 |
Charity Executive for a small organization (Atlanta, GA)
Age: 34 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 0.0 years
Commonness: 17/20
Statement of Opinion:
- We don't have international interests so we remain unaffected.
- Our attention will be on the implication for partners who might be affected.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 7 | 6 |
Cost Estimates
Year 1: $5000000 (Low: $3000000, High: $7000000)
Year 2: $4500000 (Low: $2750000, High: $6250000)
Year 3: $4250000 (Low: $2600000, High: $5900000)
Year 5: $4000000 (Low: $2400000, High: $5600000)
Year 10: $3500000 (Low: $2100000, High: $4900000)
Year 100: $2000000 (Low: $1200000, High: $2800000)
Key Considerations
- Effective implementation and compliance monitoring will dictate fiscal outcomes.
- Flexibility and specifics regarding waivers issued by the Department of the Treasury can significantly alter impacts.
- The potential shift in portfolio investments and related administrative modifications for affected organizations.