[Congressional Record Volume 153, Number 148 (Tuesday, October 2, 2007)]
[Senate]
[Pages S12439-S12441]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CRAPO (for himself, Mr. Johnson, and Mr. Gregg):
  S. 2126. 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 Judd Gregg of New Hampshire, 
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, 
had substantial bipartisan support in the House last Congress, and has 
been introduced in a bipartisan manner again in the House this 
Congress. Mr. Johnson and I are proud to introduce in the Senate 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 75 million of 155 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

[[Page S12440]]

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 2016 will need more than $300,000 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, $5,000 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 about half of the $4.1 
trillion held by American workers through 401(k) plans and other 
similar job-based savings programs. About 38 million American investors 
hold mutual funds through their defined contribution plans. More than 
31 million American investors 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 Mr. 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 text of the bill was ordered to be 
placed in the Record, as follows:

                                S. 2126

       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 2007''.

     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, 2010, 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.

  Mr. JOHNSON. Mr. President, I am pleased today to once again join my 
colleague Mike Crapo of Idaho in introducing a bill with growing 
bipartisan support, a bill that promises to be an important part of the 
many steps we will need to take to help Americans save more effectively 
for the many long-term needs they must increasingly plan for on their 
own--health, education and retirement.
  Currently, mutual fund investors who are saving outside a 401(k) plan 
or an IRA find themselves taxed every year as a result of the buying 
and selling that is part of fund diversification, even if they have 
arranged to automatically reinvest any capital gains, even though they 
sold no shares, in fact, even if the value of their investments have 
fallen.
  As a result, each year during tax season, we hear from investors who 
have worked hard and played by the rules. These are Americans who are 
committed to a plan of saving for the long term, who nevertheless find 
themselves hit with a tax bill although they are simply staying the 
course. Mr. Crapo and I don't believe that these people should be 
discouraged from long-term investing and taxed I prematurely when a 
better-timed tax--one that comes in when investments are sold--would 
better facilitate long-term investing, retirement readiness, and 
perhaps even tax compliance through simpler calculations and fewer 
annual adjustments.
  Congress has spent a great deal of effort trying to strengthen and 
promote pension promises, through both defined benefit and defined 
contribution plans. Yet many of today's workers do not yet have in 
place the retirement savings to supplement Social Security benefits. In 
fact, almost half of American workers--nearly 75 million of 155 million 
workers--are not offered any form of pension or retirement savings plan 
at work. These are the people who need GROWTH the most.
  And the challenge they face for the future is growing. The number of 
years Americans and their families can expect to spend in retirement is 
growing, as are the costs individuals can expect to bear in retirement. 
Individual savings opportunities for those who spend some or all of 
their working years without participating or vesting in an employer's 
retirement plan are modest. Those workers covered by an employer's 
retirement plan, for example, can set aside a deductible IRA 
contribution of only $4,000 this year, $5,000 if they

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are age 50 or older. Many will want and need to save more every year if 
they are to be ready for retirement. These are the people who need 
GROWTH.
  How many are there? More than 31 million Americans 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 would 
provide sensible tax treatment that would defer, not avoid, taxation. 
In the process, it would better enable retirement savers in what they 
are trying to do, plan for an uncertain road ahead.
  A bigger tax debate is ahead, along with a bigger debate about the 
future of Social Security and the way to modernize and improve private 
sector retirement savings tools that must supplement it. The GROWTH Act 
is one of those practical building blocks that deserves to be part of 
future debates on tax and retirement policy. Its impact illustrates 
just how many millions of American households are out there right now, 
households of modest incomes, saving on their own, through mutual fund 
investments, making up that growing middle class, a middle class that 
is facing a lot of squeezes, a lot of growing demands on their savings, 
but a group that is trying to save nevertheless. About three in five 
fund investors have household incomes between $25,000 and $100,000. Not 
high-flyers looking to be creative, but working people who deserve to 
find a few less obstacles in their way.
  I urge my colleagues to join Mr. Crapo and me in supporting the 
GROWTH Act and refocusing their attention to just who these savers are 
and what kind of sensible tax policy they need.
                                 ______