Lawmakers Introduced GROWTH Act for Tax Deferral
The proposed legislation aims to allow investors to defer taxes on certain reinvested capital gains distributions.
Updated on Sept. 29, 2026 in Investing
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Should Congress change the tax rules to defer capital gains taxes for mutual fund investors?
Senator John Cornyn and Representative Beth Van Duyne have introduced the GROWTH Act in Congress to update how capital gains are taxed. The proposal permits investors to defer tax on qualifying reinvested capital gains distributions until their fund shares are eventually sold.
Why it matters
The legislation seeks to improve tax neutrality between mutual funds and exchange-traded funds while reducing the role of the tax code in investment decision-making. Supporters aim to increase after-tax returns to saving and boost long-run gross national product.
The legislation is projected to reduce federal revenue by $37.7 billion between 2027 and 2036. It also targets an average after-tax income increase of 0.1 percent in 2027, compared to less than 0.05 percent by 2036.
The players
John Cornyn
He is a U.S. Senator representing Texas who serves on the Senate Finance Committee.
Beth Van Duyne
She is a U.S. Representative from Texas serving on the House Ways and Means Committee.
The details
The bill addresses disparities where mutual fund investors may incur tax liabilities while holding positions, whereas ETF shareholders can utilize secondary markets to avoid in-kind redemption distributions. To maintain integrity, the proposal prevents taxpayers from avoiding tax through a step-up in basis.
Timeline
The GROWTH Act increases after-tax incomes by 0.1 percent in 2027.
The revenue reduction impact covers the 2027-2036 period.
By 2036, the act is expected to increase after-tax incomes by less than 0.05 percent.
Market Dynamics
The GROWTH Act modifies the Internal Revenue Code to change the taxation of capital gains distributions. The proposal represents a targeted adjustment to the current regulatory framework governing regulated investment companies.
Investors may see changes in their tax liabilities on capital gains distributions if they hold mutual funds. The proposal aims to incentivize long-term saving by allowing for the deferral of taxes on reinvested gains.
The takeaway
The proposed tax changes suggest a shift toward aligning mutual fund tax treatments with those of other financial vehicles. Investors should monitor the progress of this bill to determine if it will impact their long-term tax planning strategies.
Further reading
For more background on how regulatory changes affect portfolios, visit Investing.
Source note: This article includes information reported by Tax Foundation.
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Should Congress change the tax rules to defer capital gains taxes for mutual fund investors?
