US Senator Calls For Tax Fairness On Mutual Fund Distributions

by Mike Godfrey, Tax-News.com, Washington

05 December 2001

US Joint Economic Committee Chairman, Jim Saxton (R - Ill.), has published a new study on the boom in mutual funds ownership in the last twenty years which shows how the proportion of households owning mutual funds has grown from less than 10 per cent in 1980 to almost 50 per cent in recent years.

The study, 'Mutual Fund Investors: A Reflection Of Middle America,' is released at a time when many mutual fund companies are preparing their end of year capital gains distributions. According to Saxton the number of American households with interests in financial investments has 'skyrocketed.' He claims that mutual funds can make it possible for almost any one to become an investor and this has proved revolutionary for the American economy.

But Saxton argues that there is a tax problem related to mutual fund ownership. He says: 'Fund shareholders who have not sold shares are nevertheless liable for taxes on capital gains distributions made by mutual funds. These capital gains must be paid even if the value of the unsold shares decline.'

'Last year,' adds the senator,'many middle-class shareholders were caught in this tax trap. Mutual fund shareholders should not have to pay capital gains taxes until they choose to sell their shares, as is the case with investors holding common stock.'

Saxton published an earlier report in April of this year entitled 'The Taxation of Mutual Fund Investors: Performance, Saving and Investment', which led him to propose a new law to reform the capital gains taxation system.

Known as HR 168, the bill proposes a deferment on taxation on capital gains distributions until the shareholder redeems his shares. Saxton says the legislation has attracted wide support with fifty House sponsors and co-sponsors from across both parties. He commented: 'I am hopeful that the Administration will consider this or similar legislation for inclusion in the President's budget early next year.'

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