[Congressional Record Volume 149, Number 66 (Tuesday, May 6, 2003)]
[Extensions of Remarks]
[Page E877]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  LEGISLATION TO DEFER THE CAPITAL GAINS TAX ON MUTUAL FUND INVESTORS 
                         UNTIL SHARES ARE SOLD

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                             HON. PAUL RYAN

                              of wisconsin

                    in the house of representatives

                          Tuesday, May 6, 2003

  Mr. RYAN of Wisconsin. Mr. Speaker, millions of working Americans 
depend on mutual funds to invest and save for their future. Fund 
investors are overwhelmingly middle-income families and individuals who 
are investing for the long term and mutual funds provide an ideal way 
for smaller investors to invest in the U.S. economy. Easing the burden 
to invest and increasing the opportunities for these investors to put 
more into their portfolios is especially critical now given the 
nation's current economic health.
  Because mutual funds are primarily used for long-term investments, 
many fund investors are understandably frustrated by a tax rule that 
forces them to pay tax on capital gains before they sell their shares 
in the fund. To further their long-term savings and investment goals, 
fund investors typically choose to have any capital gains 
distributions, which they would otherwise receive from the fund, 
automatically reinvested in the fund. Nevertheless, under current tax 
law, these fund investors are required to pay tax on such amounts even 
though they took no action to trigger those gains and their investment 
dollars remain in the fund. As widely reported in the press, fund 
investors find this tax rule inconsistent with both the long-term 
nature of their investment and their understanding of how investments 
are taxed.
  This tax problem would be solved with my legislation by permitting 
fund investors to defer tax on mutual fund capital gain distributions 
that are automatically reinvested in the fund. These gains would be 
taxed when the investors sell their shares in the fund. Postponing the 
capital gains tax until the fund investor decides to sell his or her 
shares in the fund is consistent with the basic philosophy that a 
capital gains tax on an investment is not due until you sell the 
investment. This is the way an investor who holds stock directly is 
taxed.
  Deferring capital gains tax on mutual fund investors until they sell 
their fund shares will promote savings by middle-income investors. 
Adoption of this approach will permit those savings to grow more 
rapidly and remain invested in America's economy as intended by the 
fund investors.
  My bill will promote personal savings and investment in the national 
economy by changing tax rules to reflect the continuing nature of the 
shareholder's investment in the fund.

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