[Congressional Record Volume 151, Number 119 (Wednesday, September 21, 2005)]
[Senate]
[Page S10299]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CRAPO (for himself, Mr. Johnson, and Mr. Bunning):
  S. 1740. A bill to amend the Internal Revenue Code of 1986 to allow 
individuals to defer recognition of reinvested capital gains 
distributions from regulated investment companies; to the Committee on 
Finance.
  Mr. CRAPO. Mr. President, I rise today to introduce, along with my 
colleagues Tim Johnson of South Dakota and Jim Bunning of Kentucky, an 
important bill that will allow Americans to save more for the long term 
and will better prepare them for a secure retirement. The Generating 
Retirement Ownership Through Long-Term Holding GROWTH, Act has 
substantial and growing bipartisan support in the House, and Senator 
Johnson and I are proud to introduce this bipartisan legislation that 
provides Americans a better tool to grow their long-term retirement 
savings.
  The GROWTH Act would allow investors in mutual funds to keep more 
retirement savings invested longer and growing longer by deferring 
taxation of automatically reinvested capital gains until fund shares 
are sold, rather than allowing those long-term gains--which generate no 
current income or cash in hand--to be taxed every year.
  To understand how beneficial this bill would be, it is important to 
understand the role of mutual funds in long-term retirement savings. 
Among households owning mutual funds, 92 percent are investing for 
retirement, with more than 70 percent saying their primary purpose in 
investing in funds is to prepare for retirement. Many of today's 
workers do not yet have in place the retirement savings supplement to 
Social Security that will prepare them for the future. In fact, almost 
half of American workers--nearly 71 million of 151 million workers--are 
not offered any form of pension or retirement savings plan at work.
  Meanwhile, the number of years spent in retirement is growing and the 
costs individuals can expect to bear in retirement are growing, too. 
The Employee Benefit Research Institute estimates that an individual 
retiring at age 65 in 2014 will need $285,000 just to cover health 
coverage premiums and expenses. Individual savings efforts also face 
significant obstacles. Those not covered by an employer's retirement 
plan, for example, can set aside a deductible IRA contribution of only 
$4,000 this year--$4,500 if they are age 50 or older.
  Mutual funds are a hugely important part of American workers' 
preparation for retirement, both through their employers' retirement 
plans and on their own. Mutual funds now make up half of the $3.2 
trillion held by American workers through 401(k) plans and other 
similar job-based savings programs. About 34 million American 
households hold mutual funds through their defined contribution plans. 
More than 30 million American households are saving through taxable 
mutual fund accounts, either as supplements to their employers' plans 
or because they do not have such plans.
  The GROWTH Act is also a good idea because it remedies an unfairness 
in the tax code that can make saving difficult for many Americans. 
Mutual fund investors who are struggling to save for retirement should 
not have to pay taxes on ``profits'' they have not realized. If they 
don't have money in hand, it makes no sense for them to have to pay 
taxes. The GROWTH Act would defer taxes until the mutual fund shares 
are sold and the investor has actual funds to pay the taxes.
  The GROWTH Act would be a valuable contributor to retirement savings 
efforts. Mutual fund savers who automatically reinvest are doing what 
policymakers want to see. They are holding for the long term, 
contributing to national savings, and building up their own retirement 
nest egg. These Americans should be encouraged to save--not discouraged 
through a tax on automatic reinvestments. The GROWTH Act is a step that 
will show immediate results, a step that will help tens of millions of 
American savers and ``should-be savers'' over the course of their 
working lives, and a step that with time can make a real difference in 
the retirement readiness of American families.
  I urge my colleagues to join Senator Johnson and me in supporting the 
GROWTH Act. Mr. President, I ask unanimous consent that the text of the 
bill be printed in the Record.
  There being no objection the bill was ordered to be printed in the 
Record, as follows:

                                S. 1740

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Generate Retirement 
     Ownership Through Long-Term Holding Act of 2005''.

     SEC. 2. DEFERRAL OF REINVESTED CAPITAL GAIN DIVIDENDS OF 
                   REGULATED INVESTMENT COMPANIES.

       (a) In General.--Part III of subchapter O of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to common 
     nontaxable exchanges) is amended by inserting after section 
     1045 the following new section:

     ``SEC. 1046. REINVESTED CAPITAL GAIN DIVIDENDS OF REGULATED 
                   INVESTMENT COMPANIES.

       ``(a) Nonrecognition of Gain.--In the case of an 
     individual, no gain shall be recognized on the receipt of a 
     capital gain dividend distributed by a regulated investment 
     company to which part I of subchapter M applies if such 
     capital gain dividend is automatically reinvested in 
     additional shares of the company pursuant to a dividend 
     reinvestment plan.
       ``(b) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Capital gain dividend.--The term `capital gain 
     dividend' has the meaning given to such term by section 
     852(b)(3)(C).
       ``(2) Recognition of deferred capital gain dividends.--
       ``(A) In general.--Gain treated as unrecognized in 
     accordance with subsection (a) shall be recognized in 
     accordance with subparagraph (B)--
       ``(i) upon a subsequent sale or redemption by such 
     individual of stock in the distributing company, or
       ``(ii) upon the death of the individual.
       ``(B) Gain recognition.--
       ``(i) In general.--Upon a sale or redemption described in 
     subparagraph (A), the taxpayer shall recognize that portion 
     of total gain treated as unrecognized in accordance with 
     subsection (a) (and not previously recognized pursuant to 
     this subparagraph) that is equivalent to the portion of the 
     taxpayer's total shares in the distributing company that are 
     sold or redeemed.
       ``(ii) Death of individual.--Except as provided by 
     regulations, any portion of such total gain not recognized 
     under clause (i) prior to the taxpayer's death shall be 
     recognized upon the death of the taxpayer and included in the 
     taxpayer's gross income for the taxable year ending on the 
     date of the taxpayer's death.
       ``(3) Holding period.--
       ``(A) General rule.--The taxpayer's holding period in 
     shares acquired through reinvestment of a capital gain 
     dividend to which subsection (a) applies shall be determined 
     by treating the shareholder as having held such shares for 
     one year and a day as of the date such shares are acquired.
       ``(B) Special rule for distributions of qualified 5-year 
     gains.--In the case of a distribution of a capital gain 
     dividend (or portion thereof) in a taxable year beginning 
     after December 31, 2008, and properly treated as qualified 5-
     year gain (within the meaning of section 1(h), as in effect 
     after such date), subparagraph (A) shall apply by 
     substituting `5 years and a day' for `one year and a day'.
       ``(c) Section Not to Apply to Certain Taxpayers.--This 
     section shall not apply to--
       ``(1) an individual with respect to whom a deduction under 
     section 151 is allowable to another taxpayer for a taxable 
     year beginning in the calendar year in which such 
     individual's taxable year begins, or
       ``(2) an estate or trust.
       ``(d) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section.''.
       (b) Conforming Amendments.--
       (1) Section 852(b)(3)(B) of such Code is amended by adding 
     at the end the following new sentence: ``For rules regarding 
     nonrecognition of gain with respect to reinvested capital 
     gain dividends received by individuals, see section 1046.''.
       (2) The table of sections for part III of subchapter O of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 1045 the following new item:

``Sec. 1046. Reinvested capital gain dividends of regulated investment 
              companies.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.
                                 ______