Investment Company Institute President Paul Schott Stevens Discusses the Growth Act

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 That keeps more retirement savings invested longer and growing longer by taxing income when it's withdrawn, not savings while they are being built up.”

“Millions of mutual fund investors now saving on their own for retirement without access to an employer-sponsored plan. Millions of mutual fund investors now supplementing their employers' plan because it won't be enough by itself. And millions of working Americans who have no access to an employer-sponsored plan and haven't yet begun to save on their own, either. For these people, mutual funds represent the most readily available and affordable option for retirement planning.”

“One, middle-income taxpayers would be encouraged to build their retirement portfolios—not penalized for it. Most mutual fund investors have less ability than high-income taxpayers to rearrange their finances to minimize capital gains. When examining this issue, the Wall Street Journal has reported on taxpayers who have found themselves with little practical choice but to sell shares to pay their taxes.

Two, deferral would recognize shareholders' expectations. People who plan in advance to automatically reinvest dividends should not find themselves taxed on what they didn't receive, didn't sell, didn't spend—didn't even touch.

Three, permitting tax deferral would recognize the unique nature of mutual fund investing. The investors who are automatically reinvesting are in for the long haul. With a balanced, diversified portfolio, they aren't making a buy-or-sell decision about each holding and they aren't making year-to-year decisions about keeping their money invested. What should be taxed is the growth of the overall fund from the day a taxpayer first invests in it to the day they dispose of it. Long-term investors need a long-term tax policy.”