Proposed legislation: Defer capital gains taxes on mutual fund investments

Gail Buckner has written up a good article on HR 2121, the Generate Retirement Ownership Through Long-Term Holding Act of 2005. Her article is posted at Fox News, "Mutual Fund Investors Unite!" The basic gist of the bill: mutual fund investors would be able to defer paying capital gains taxes on reinvested dividends and capital gains until they cash out their shares. What's the benefit of deferring taxes instead of paying them each year? Investors would be able to let their earnings stay invested in the financial markets, thereby harnessing the power of compounding to make their investments grow faster. This bill would cost the Treasury some tax money in the short-term, however, as Ms. Buckner points out, "the government would eventually collect its money — and possibly more thanks to compounding — when those mutual fund shares are sold." (Thanks to Kerry Kerstetter at the Tax Guru for alerting me to this article.) You can track the ongoing status of HR 2121 through the GovTrack.us web site.