S.1839 - Generating Retirement Ownership through Long-Term Holding (119th Congress)
Summary
S.1839, the "Generating Retirement Ownership through Long-Term Holding" act, proposes an amendment to the Internal Revenue Code of 1986. The amendment aims to allow individuals to defer recognition of capital gains distributions from regulated investment companies (RICs) if these distributions are automatically reinvested in additional shares of the company through a dividend reinvestment plan.
This deferral would not apply to individuals for whom a deduction is allowable to another taxpayer under section 151 or to estates or trusts. The bill instructs the Secretary to prescribe regulations necessary to carry out the purposes of this section.
The bill was introduced in the Senate by Mr. Cornyn and referred to the Committee on Finance.
Expected Effects
The primary effect of this bill, if enacted, would be to incentivize long-term investment in regulated investment companies, particularly for retirement savings. By deferring the recognition of capital gains taxes on reinvested dividends, individuals may be more likely to reinvest, potentially leading to greater retirement savings over time.
This could also simplify tax reporting for individuals who automatically reinvest their dividends. However, the deferred gains would eventually be recognized upon the sale or redemption of the stock or upon the death of the individual.
Potential Benefits
- Encourages long-term investment and retirement savings by deferring capital gains taxes on reinvested dividends.
- Simplifies tax reporting for individuals who automatically reinvest dividends.
- Could lead to increased investment in regulated investment companies, potentially benefiting the financial market.
- May provide a greater incentive for individuals to save for retirement, reducing reliance on social security or other government programs.
- Could increase individual wealth over time due to the compounding effect of reinvested dividends.
Potential Disadvantages
- The tax deferral primarily benefits individuals who have the means to invest in regulated investment companies, potentially exacerbating wealth inequality.
- The deferred gains are eventually taxed, which could create a larger tax burden in the future, especially upon death.
- The complexity of the tax code is increased by adding another exception and set of rules.
- The bill does not address other potential barriers to retirement savings, such as low wages or lack of access to financial education.
- The holding period rule (treating shares as held for one year and a day) could create unintended consequences for tax planning.
Most Disadvantaged Areas:
Constitutional Alignment
The bill appears to align with the general welfare clause of the Constitution (Preamble), as it aims to promote retirement savings and financial security for individuals. Congress has the power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States (Article I, Section 8, Clause 1).
The specific details of tax law are generally left to the discretion of Congress, provided they do not violate any specific constitutional protections. There is nothing in the bill that appears to infringe upon individual rights or liberties protected by the Constitution or its amendments.
However, the bill's potential impact on wealth inequality could raise concerns about whether it truly promotes the general welfare for all citizens.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).