[Congressional Record (Bound Edition), Volume 146 (2000), Part 9]
[Extensions of Remarks]
[Page 12209]
[From the U.S. Government Publishing Office, www.gpo.gov]



   INTRODUCTION OF LEGISLATION TO PROVIDE TAX RELIEF FOR MUTUAL FUND 
                              SHAREHOLDERS

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                            HON. JIM SAXTON

                             of new jersey

                    in the house of representatives

                        Thursday, June 22, 2000

  Mr. SAXTON. Mr. Speaker, our tax code has many features that are 
economically counterproductive, but few are as destructive as those 
aiirned at personal saving and investment. The current tax system 
undermines personal saving and investment in many ways, but today I 
would like to address the tax treatment of mutual fund capital gains 
distributions. Middle income savers and investors involuntarily receive 
these distributions from their mutual funds, and must pay tax on them 
even though they may have sold no shares in the fund. Today, I am 
introducing legislation to provide a partial exclusion limiting the 
federal taxation of these involuntary distributions.
  Essentially, the current law forces middle income savers and 
investors to pay tax on capital gains they have not realized. Even if 
the value of their shares has declined or they have owned them for only 
a short time, they can be slammed with a huge tax liability. As a 
recent Joint Economic Committee study pointed out, this tax can reduce 
the pre-liquidation rate of return by 10 to 20 percent. Furthermore, 
due to the complexity of the law, many taxpayers can easily pay this 
tax twice. This is unfair and undermines incentives to save and invest.
  In recent years, mutual funds have enabled many ordinary Americans to 
share in the tremendous economic gains that resulted from the 
technological innovation, productivity gains, and surge in wealth of 
the 1990s. Tens of millions of ordinary Americans now have substantial 
investments in the financial markets, many of them through mutual 
funds. Federal policy should accommodate these efforts of our citizens 
to provide for their retirement security, education, housing, and other 
needs. Federal tax policy should not erect excessive tax barriers 
undermining the incentives and ability of middle income taxpayers to 
plan for their own needs.
  Today, I am introducing legislation providing a $3,000 tax exclusion 
for individuals, and a $6,000 exclusion for couples, to shield annual 
capital gains distributions. When taxpayers sell their shares in the 
mutual fund, they would pay the tax on these gains, but these 
exclusions would shield most middle income taxpayers from immediate 
taxation and potentially double taxation on capital gains 
distributions. Other investors generally are not taxed on an accrual 
basis on their capital gains, and we should do what we can to level the 
playing field, and end tax discrimination against personal saving and 
investment. As the eminent economist Irving Fisher once wrote, ``A tax 
on accretion penalizes those who are rising the social scale, the 
builders of the nation . . .'' The current tax bias against thrift 
should be a major target of reform for the foreseeable future.

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