OPINION:
During my years representing Texas in Congress, including service as chairman of the House Ways and Means Committee, I worked alongside President Trump to deliver the Tax Cuts and Jobs Act of 2017, the most consequential pro-growth tax reform legislation in a generation. Long before that landmark law, I focused much of my congressional career on a simple principle: Americans should be encouraged to save and invest for the future, not punished by a tax code that drains capital away from workers, retirees and small investors.
That principle is at the heart of H.R. 2089, the GROWTH Act. This legislation is championed by my fellow Texans, Rep. Beth Van Duyne and Sen. John Cornyn. As tax writers, their bill would correct one of the most irrational features of the federal tax code affecting mutual fund investors.
Today, Americans who own mutual funds in taxable brokerage accounts can receive federal tax bills on capital gains that were automatically reinvested and never actually received in cash. Investors can owe taxes even when they have never sold their shares, never withdrawn money from the account and never realized any spendable income.
Congress has an opportunity to fix this flaw through budget reconciliation later this year.
The problem is especially acute for retirees and near-retirees who have accumulated taxable investment accounts outside traditional retirement plans. Many Americans entering retirement today hold brokerage accounts built through decades of disciplined investing. In Texas, that population continues to grow as families relocate from high-tax states in search of economic opportunity, lower living costs and greater financial stability.
A retired engineer moving from Illinois to Texas or a small-business owner relocating from California may arrive with substantial mutual fund holdings intended to finance retirement. Many are surprised to discover that federal law can impose annual taxes on reinvested gains they have never actually touched.
Every dollar paid prematurely to the IRS is a dollar no longer compounding for retirement security, charitable giving, healthcare needs or family inheritance planning. Over time, those lost compounding effects become significant.
The GROWTH Act would restore fairness by allowing investors to defer taxes on reinvested mutual fund capital gains until they actually sell their shares. Taxes would still be owed upon realization. The legislation simply aligns mutual fund taxation more closely with the treatment of many other long-term investments.
That approach reflects sound tax policy and long-standing conservative economic principles. Lower taxes on investment encourage capital formation, business expansion, job creation and long-term economic growth. Throughout my congressional career, I have consistently supported policies that reduced taxes on savings and investment because capital investment remains one of the strongest drivers of rising wages and economic prosperity.
The Tax Cuts and Jobs Act embraced those same principles through lower individual and business tax rates, immediate expensing and broader investment incentives across the American economy. The stronger economic growth and higher paychecks that followed demonstrated once again that allowing Americans to keep and invest more of their own money produces better results than funneling ever larger sums through Washington.
Retirement savings champions in Congress would do well by advancing this legislation in the House, understanding both the technical flaws in the current treatment of reinvested gains and the practical impact those rules impose on ordinary investors. I applaud Ms. Van Duyne’s successful securing of broad bipartisan support for the legislation — 91 members of Congress, equally split between Republicans and Democrats, which is a rare and welcome achievement for further retirement reforms in Washington.
The GROWTH Act reflects the changing realities of retirement in America. Defined benefit pensions have largely disappeared from the private sector. Americans increasingly shoulder responsibility for managing their own long-term savings through 401(k)s, IRAs, brokerage accounts and mutual funds. Federal tax policy should encourage self-reliance rather than penalize it.
Texas and other states have become the destination of choice for Americans seeking economic freedom and financial stability. Congress should not undermine those aspirations by imposing tax rules that force retirees and long-term investors to pay taxes on gains they never realized or received.
• Former Rep. Kevin Brady represented Texas’ 8th Congressional District for 26 years. He served on the House Ways and Means Committee.
Please read our comment policy before commenting.