Senate Finance Committee Chairman Ron Wyden has floated a new tax on exchange-traded funds’ in-kind transactions, which may have a negative effect on investors.
Senate Finance Committee Chairman Ron Wyden, D-Ore., has proposed a new levy on exchange-traded funds, and the measure has already received pushback from the investment industry. Exchange-traded funds, or ETFs, are buckets of assets — such as stocks and bonds — that can be bought or sold throughout the day like a stock. Regular investors don’t directly own the underlying assets, but fund managers can buy or sell the shares to financial institutions. ETF investors typically avoid taxes while holding the funds because financial institutions swap the underlying assets for others, known as an “in-kind” trade, without producing capital gains. It’s one of the primary tax advantages ETFs have over actively managed mutual funds, which distribute taxable gains to investors, often at the end of the year. Wyden’s proposal to end the tax break for in-kind transactions may bring in $200 billion over the next decade, according to preliminary estimates from the nonpartisan Joint Committee on Taxation.
