The GROWTH Act

Under present law, mutual funds are required to distribute their net capital gains to fund shareholders at least once a year. Mutual fund investors typically choose to reinvest capital gain distributions automatically. Investors with taxable accounts are required to pay taxes on these capital gain distributions, even if they do not sell their fund shares.

An initiative known as the Generate Retirement Ownership Through Long-Term Holding Act (GROWTH Act) would address this problem by deferring taxes on automatically reinvested capital gain distributions until investors sell fund shares. Under versions of the GROWTH Act introduced in past Congresses, the reinvested gains would compound, untaxed, in the fund, and an investor would pay tax on the fund’s gains only when the investor decided to redeem the shares and incur the gain. By reducing current tax bills and allowing earnings to grow tax-deferred, the GROWTH Act would boost long-term savings.

ICI strongly supports the principles of GROWTH. A GROWTH Act would encourage savings by allowing mutual fund shareholders to keep more of their own money working for them longer by deferring capital gains taxes until they actually sell their investment, and would provide a sensible way for millions of Americans to create a more secure financial future for themselves and their families.