President Donald J. Trump’s Big Beautiful Bill is loaded with tax cuts including no tax on tips, no tax on overtime, and tax protections for Social Security. The bill is on its way to a signing ceremony, but there is some unfinished business when it comes to tax cuts and reform. One issue is a sneaky tax on mutual funds that needs to be fixed soon.
The Trump tax reform bill as passed in the House has some good tax provisions. The AP reported on May 22, 2025, “Republicans look to make permanent the individual income and estate tax cuts passed in Trump’s first term, in 2017, plus enact promises he made on the 2024 campaign trail to not tax tips, overtime and interest on some auto loans.” In addition, “Republicans propose repealing or phasing out more quickly the clean energy tax credits passed during Joe Biden’s presidency, helping to bring down the overall cost of the tax portion to about $3.8 trillion.” These are all great provisions, even though concerns about the push against deep cuts to spending and the big debt limit increase offset some of the good. More tax reform needs to be added to the measure when the Senate considers the Big Beautiful Bill in the coming weeks.
If the Senate wants to add a sweetener for average voters and to air drop in a provision that will make Americans holding mutual funds happy, they might consider a provision that stops the sneaky taxation imposed on mutual fund holders every year. Millions of American voters invest in retirement funds. Many of those funds are mutual funds and are currently subject to stealth tax on money that investors never see in their checking or savings account.
Mutual funds are required to distribute any realized gains to shareholders on an annual basis when they sell an asset in a portfolio. Your average investor never sees the cash, and the transaction is one on paper. Most are holding onto this asset until they retire, yet the Internal Revenue Service (IRS) ignores the fact that annual distributions are reinvested. So, as many plan for retirement, they get hit with a taxable event every year because they have a mutual fund. This is deterrent for many to get a mutual fund as an investment for future retirement.
This problem is already memorialized as legislation in the House and Senate. Reps. Beth Van Duyne (R-TX) and Terri Sewell (D-AL) are leading on the GROWTH Act in the House of Representatives to remove tax penalties for mutual success. In the U.S. Senate, John Cornyn (R-TX) has introduced a version of the bill. Sen. Cornyn has a great opportunity to add his bill to the Trump tax reform. The Trump tax bill is expected to be significantly changed in the Senate, and it should be made better.
The legislation will promote mutual funds as a safe investment in the future because the government will stop harassing investors every year with an unwelcomed tax bill. The Senate could add a big, beautiful amendment in the form of the GROWTH Act to the House passed ‘Big, Beautiful Bill’ that contains the tax provisions in the budget for this year. That would make the tax reform in the bill even better.
Mutual fund holders should not be deterred from investing in a mutual fund. They should be taxed when they eventually cash out for any gains that merit taxation.
One way to remove the punishment investors feel when they pay taxes every year on mutual funds is for the Senate to add the language of the GROWTH Act to stop punishing savings and investment.
Judson Phillips is Judson Phillips is the founder of Tea Party Nation, one of the largest tea party groups in the country. .
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