Tax break proposed for fund investors

Published: Jan 31, 2003 2:28 p.m. ET

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Lawmaker says shareholders unfairly burdened

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Asst. commentary editor

WASHINGTON (CBS.MW) - As if mutual fund investors haven't been hurt enough by falling stock prices, they also face an insulting tax hit even when they haven't sold a single share in a given year.

U.S. Rep. Jim Saxton, R-N.J., is now leading an initiative to give fund owners a break.

Saxton reintroduced a bill Thursday to allow shareholders to defer taxes on capital-gain distributions up to $3,000 for individuals and $6,000 for joint filers. Similar legislation was cosponsored by 70 House members in the previous Congress.

"The current tax treatment of mutual fund shareholders regarding capital gain distributions is illogical and unfair," Saxton said in a statement. "When mutual fund generate huge capital gains, the shareholders get slammed."

Stock-fund owners must pay tax on capital gains even when they don't sell shares if portfolio managers sold stocks in the fund at a profit. The fund may have lost money in the prior year, as is true of many stock funds nowadays, but shareholders still bear the tax brunt on specific sales of stocks that have increased in value.

Individual investors, in contrast, pay capital-gains taxes only after they sell stock at a profit. Fund holders have no similar control over when taxes are paid.

If Saxon's measure becomes law, fund shareholders could stave off some capital gains taxes until they sell a fund.


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