ICI Urges Congress to Defer Taxes on Mutual Fund Gains

The Investment Company Institute ("ICI") urged Congress to pass the Generating Retirement Ownership Through Long-Term Holding ("GROWTH") Act, a bill that would allow tax-deferred reinvestment of mutual fund capital gains distributions.

In a letter to the Senate and House leadership, the ICI argued that the current tax system unfairly penalizes long-term savers by taxing them on gains they have not yet realized or withdrawn. The ICI asserted that the GROWTH Act would fix this by allowing investors to defer taxes until they actually sell their shares. The association contended that this change would align the taxation of mutual funds with other assets, in which capital gains are generally not levied until a sale occurs.

The ICI said that approximately 40 million Americans hold roughly $7 trillion in long-term mutual fund assets outside of retirement accounts. To illustrate the impact of the current regime, the ICI calculated that "an investor who made [a] $10,000 investment in [a U.S. stock] fund in 2015" would have realized "up to $1,340 more" in after-tax returns by 2024 had the GROWTH Act been in effect, as the annual tax drag reduces the compounding of returns.

The association reemphasized that the bill does not exempt gains from taxation but simply shifts the timing of the payment. The ICI stated that the legislation would reward sound personal financial management, support economic growth by increasing the amount of money in capital markets, and enable the federal government to raise revenue when the investments are eventually sold.