Congress Should Pass The GROWTH Act

Following the Commerce Department’s announcement that U.S. GDP contracted by 0.3 percent in the first quarter of 2025, lawmakers should support any pro-growth measures to get the economy moving again. One good idea is the bipartisan GROWTH Act introduced by Representatives Beth Van Duyne (R-Tx.) and Terri Sewell (D-Ala.). 

Introduced in March, the latest version of the Generating Retirement Ownership Through Long-Term Holding Act would update and improve the tax treatment of mutual funds to align with the more investor-friendly approach currently enjoyed by exchange-traded funds (ETFs). 

Under current law, mutual funds distribute realized capital gains to shareholders each year—whether paid in cash or reinvested—and shareholders incur taxes on these distributions even if they are fully reinvested and the investor does not receive them. This annual tax burden interrupts the main benefit of investing – compounding returns. It also imposes record-keeping burdens on ordinary investors.  

In contrast, ETF holders realize capital gains only upon sale of the shares themselves, mirroring the same tax treatment enjoyed by those invested in regular equities. 

The GROWTH Act would eliminate this discrepancy in tax treatment between mutual funds and ETFs by deferring taxation of mutual fund dividends until the investor redeems or sells their shares. By allowing investors to passively grow their portfolios, the legislation empowers savers, especially those nearing retirement, to accumulate larger nest eggs and reduce the burden of tax compliance. It would also force the IRS to recognize that reinvested dividends are not a taxable event since the investor did not actually receive the money. 

This bill would benefit those saving for retirement and increase capital flows. Projections for a similar bill in 2015 by the Congressional Budget Office found that as much as $50 billion more would be invested over ten years instead of going to the IRS. 

Increasing investment over the next decade will be a boon for job creation, R&D, and production. The benefits would be economically significant –  The Investment Company Institute estimates that households hold approximately $7 Trillion in long-term mutual fund assets.  

The GROWTH Act of 2025 is a common-sense change in tax treatment for investors that will help foster long-term prosperity. ATR supports the inclusion of GROWTH Act’s provisions in the budget reconciliation bill for the 2025 fiscal year. As Congress deliberates on measures to include in the reconciliation bill for the budget, the GROWTH Act has the potential to provide immediate and tangible benefits to savers, investors, and economic growth with bipartisan support.