Warren Buffet was asked how long he preferred to hold stocks that he bought for Berkshire Hathaway. His answer was succinct: forever. Buy good companies and hold on forever. As they grow, you earn paper profits you can use later in life.
Smart investors, like my Dad, follow the Sage of Omaha’s advice. They don’t try to time the market. They don’t jump in and out of stocks. They buy and hold. That’s the best play for people who are investing for the long term. When your goals remain years off, such as retirement or in my Dad’s case, college funds for the grandkids, you don’t want to face capital gains taxes each year.
However, there is one thing that investors like my Dad need to be aware of: they are being punished by federal law. If they invest in mutual funds and leave their money alone, they can still face tax hits. If the fund sells stocks and realizes gains, the investor may have to shell out to the IRS in April, even if they leave the money invested and never pocket the gains.
“Mutual fund shareholders outside of tax-preferred accounts are taxed annually on distributions of gains, interest, and dividends, despite not having sold their shares,” the Investment Company Institute notes. “This puts mutual fund shareholders at a disadvantage to other investors—whose capital gains taxes are not due until the investor realizes those gains.”
That seems impossible to believe: how can you be taxed on what you do not have? But it is true. “Under the current law, investors are taxed annually on mutual funds they invest in on dividends and capital gains that they don’t receive,” the group Secure Financial Future writes.
Luckily it does not have to be this way. Earlier this year, Republican Sen. John Cornyn of Texas and Republican Reps. Beth Van Duyne of Texas and Democratic Rep. Terri Sewell of Alabama proposed the Generating Retirement Ownership Through Long-Term Holdings (GROWTH) Act. It aims to protect the nearly 40 million mutual fund investors that are facing unfair taxes on earnings they never see from shares they never sold.
“Deferring taxes on reinvested mutual fund capital gains distributions until the investor sells their shares is a no-brainer and would help provide parity with other investment options,” Cornyn said as he unveiled the proposal. “This bill would empower hardworking Texans [and all Americans] to let their money work longer, build toward personal savings and retirement goals, and create generational wealth.”
In fact, most of us probably simply assumed this was how it worked. Unless we actively take earnings out of an investment, we don’t plan to have to pay taxes. That’s the beauty and simplicity of long-term investing. Few small investors have accountants to pay for it all. They may not even be informed that they have supposedly incurred a capital gain, if they even know what a capital gain is.
However, in Washington, nothing is ever easy. Lawmakers have empowered the IRS to come after anyone at any time, and we’ve certainly seen other recent examples of overzealous federal prosecutors going after people.
Lawmakers had a chance to fix the tax problem. They could have rolled the GROWTH Act into the Big, Beautiful spending and tax bill they passed over the summer. But they did not. So they should now come back for another bite at this apple.
They can and should enact the GROWTH Act as a standalone measure as soon as they get back to work in 2026. It’s an election year, and that means that as the year goes on it will be more difficult to enact legislation, because many lawmakers will be spending their time back home seeking reelection.
But what is better to run on than a tax cut?
By passing the GROWTH Act right away, members would have a positive story to tell on the 2026 campaign trail, and taxpayers, like my Dad and millions of other Americans, could be spared a large bill on April 15. Helping Americans invest is always the right thing to do.
Leif Larson is a noted strategist with 20 years of experience in PR, public affairs and politics. He has contributed to the success of prominent political, corporate and advocacy groups across the country throughout his career.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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