Mutual Fund Investor Tax Relief Bill Introduced in House

Washington, DC, May 11, 2005 - On May 5, Representatives Paul Ryan (R-WI) and William Jefferson (D-LA) introduced H.R. 2121, the Generating Retirement Ownership Through Long-Term Holding (GROWTH) Act of 2005. The legislation, which is strongly supported by the Institute, would provide tax relief for millions of Americans investing in mutual funds for long-term goals such as retirement.

Background
Under present law, mutual funds are required to distribute each year their net capital gains. Investors with taxable accounts are required to pay taxes on these capital gains distributions even though they typically choose to have these distributions automatically reinvested in the fund and take no action to realize these gains.

The GROWTH Act would allow mutual fund investors to defer the tax on all reinvested capital gains distributions until the shares are redeemed. This is consistent with the popular understanding that capital gains taxes are not due until you sell the investment. This is the way an investor who holds stock directly is taxed.

ICI Position
The Institute has long supported legislation that would allow mutual fund investors to defer the tax on reinvested capital gains, believing that such measures will advance the long-term savings and investment goals of Americans by allowing those savings to grow more rapidly and bolstering economic growth.

In a speech before the Institute’s 2005 General Membership Meeting, ICI President Paul Schott Stevens called the GROWTH Act “…one of the best ideas to come forward…. It would help smooth the path to long-term financial security for millions of Americans.”

“Right now, long-term capital gains distributed among mutual fund investors in taxable accounts are taxed every year – even if they are automatically reinvested,” said Stevens. “The GROWTH Act would defer taxation until fund shares are sold. That keeps more retirement savings invested longer and growing longer by taxing income when it’s withdrawn, not savings while they are being built up.”

Related Links
In addition to the links below, a section of this website is devoted to tax issues impacting mutual funds and their shareholders.