The Trump tax cuts should stop surprise capital gains taxes on mutual funds
Congress better get its act together and pass legislation to continue the Trump tax cuts soon. Nicole Russell channeled taxpayer rage Americans feel every year when she wrote in USA Today on April 15, 2025, “Happy tax day, my fellow Americans. You’re being robbed.” Russell went on to say that after she saw her first pay stub and realized what she was paying, it sent her “into a blind rage.” It is time for Congress to get its act together and fix the tax code before more Americans feel the rage that a Republican Congress is taking so long to continue the Trump tax cuts.
One thing that would make President Donald Trump’s “Big Beautiful” tax bill even more enticing would be to address the situation where millions of Americans get a surprise tax bill for money they didn’t know they owed. There is something called ‘Surprise Capital Gains’ that describes the situation where an accountant calls a family who has investments in mutual funds and informs them that they owe even more money because their investment in mutual funds has grown. That is a big surprise because none of the growth in the mutual fund is in their checking or savings account. Not a good surprise.
Our tax system is a mess loaded with tax credits, social engineering, exemptions, and sneaky taxes that hit you every day. States hammer residents with sales taxes. Local governments love property taxes. And the federal government hits you from every angle, from new tariff taxes that get you at the grocery store to sneaky fee taxes that get you when you board an airplane. We are taxed from the moment we wake until the moment we wake up again. We probably get hit with taxes during sleep too.
Over 100 million Americans have mutual funds and exchange-traded funds. They are usually middle-class families who work hard and keep these investments for retirement. The simple definition of a mutual fund is that it is an investment that accepts money from many investors to buy safe assets like bonds and stocks while being managed in a transparent and professional way. When a family buys a share, they own a portion of the fund’s portfolio of investments. Somehow the federal government thought it wise to tax these investment vehicles.
With the Trump 2017 tax reform bill back in the debate as part of Congress’s budget reconciliation process, now is the time to fix this distortion in the tax code. Two members of Congress, Representative Beth Van Duyne (R-TX) and Representative Terri Sewell (D-AL) introduced The GROWTH Act. The legislation simply defers a taxable event until a mutual fund shareholder sells. This seems like a simple solution to the problem that has bipartisan support.
Common sense, not shared by all in Congress, would allow American families the freedom to invest as they so choose without the government stealing profits that an investor only sees on paper. Rep. Van Duyne observed that the legislation would allow “families to embrace American exceptionalism by giving them the freedom to invest in their future and secure their American Dream while working to achieve financial security and generational wealth.” Only Internal Revenue Service (IRS) bureaucrats and hard-core progressives who hate private investment could possibly be against keeping investments in mutual funds free from the long arm of the tax collectors.
Now is a time when we see efforts to cut the size of the federal government and discussions on Congress passing a ‘Big, Beautiful Bill.’ Politico reported on April 14, 2025, that although the House and Senate passed a budget blueprint, “completing that intermediate step exposed huge fissures between the House and Senate over a range of issues crucial to finishing the sprawling legislation that’s expected to span tax cuts, border security, energy and more.” Voters don’t care about all the haggling; they want to see a tax bill that reforms the tax code and continues low personal income taxes.
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A small, beautiful tax bill would be one that fit on a post card and levied a low flat rate on all Americans while ridding the tax code of all tax credits, but we will have to wait a long time to see that day. What our citizens want now is for Congress to do its job and pass a tax bill that does not continue sneaky taxes on middle-class citizens, like the ‘Surprise Capital Gains’ tax, while continuing existing lower rates on individual filers.
The purpose of federal taxes should be to fund limited, small government. Continuing to push for legislation that keeps taxes low will be both popular and good policy.
Brian Darling is former Counsel for Sen. Rand Paul (R-KY).