The current taxation on required mutual fund capital-gains distributions needs to be removed. Funds are the investment vehicle of choice for middle-class investors. Yet, current legislation requiring funds to annually distribute realized capital gains saddles fund investors with often-significant tax bills for simply holding a fund and reinvesting capital-gains distributions. This places funds at a disadvantage to other investments, particularly those available mainly to the wealthy. Meanwhile, current tax law provides highly preferential treatment for so-called "carried interest," which allows hedge fund and private equity managers to reduce and defer taxes owed. The solution is to tax carried interest as ordinary income and remove the punitive taxes on funds' capital-gains distributions.
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