John C. Coates (Harvard) has proposed to the Committee on Capital Markets Regulation a series of tax and regulatory reforms of the mutual fund industry. Here are his tax recommendations:
Professor Coates seeks to correct U.S. taxation of mutual funds by bringing it into line with the tax regime for collective investments in other developed nations. Specifically, he recommends that Congress:
- permit investors owning less than 2% of a U.S. mutual fund’s shares to defer capital gains tax until they sell their fund shares—making it possible for U.S. funds to market themselves directly to foreign investors
- allow U.S. mutual fund investors to realize capital losses in the same manner and at the same time as they realize capital gains—re-stimulating investors to invest in U.S. rather than foreign mutual funds; and to
- permit U.S. investors to invest in foreign funds in countries that only impose tax on investors when profits and dividends are distributed without incurring any additional U.S. taxes or penalty. This measure would make it practical for U.S. investors to invest directly in foreign funds.
