GROWTH Act

On May 20, 2009, I joined with South Dakota Senator Tim Johnson to introduce the Generate Retirement Ownership Through Long-Term Holding Growth Act (S. 1082). The GROWTH Act fixes an inequity regarding mutual fund investors. It amends the Internal Revenue Code to provide that no gain shall be recognized on the receipt of a capital gain dividend distributed by a regulated investment company if such dividend is automatically reinvested in additional shares of the company pursuant to a dividend reinvestment plan. The bill was first introduced in the 109th Congress as S. 1740, and re-introduced in the 110th Congress as well.

The U.S. Securities and Exchange Commission concluded in a report on mutual fund fees, "Although fund expenses play a key role in determining ultimate shareholder wealth, taxes play an even larger role for many investors in mutual funds."

GROWTH Act Facts

- Owners of individual stocks only have to pay capital gains taxes when they actually sell a stock at a profit

- Owners of mutual funds have to pay taxes whenever the fund recognizes a profit or pays a dividend, even if the owner does not sell the mutual fund

- The GROWTH Act would level the playing field by deferring any capital gains taxes until an owner actually sells a mutual fund

Of the 92 million Americans who own mutual funds, nearly 37 million own them in taxable accounts, including 29 million in long-term taxable accounts. For these investors, one of the most frustrating aspects of the tax law is this: for taxable accounts, they must pay taxes today on fund shares they may not sell for years. Obviously, fund shareholders, like other investors, expect to be taxed when they sell their shares, but not before. Nor should they be. Not when they are still building for retirement and other long-term financial goals.

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