Paul S. Atkins is chairman of the Securities and Exchange Commission.
On the cusp of the 250th anniversary of the American Revolution, which was partially inspired by that famous revolt in Boston Harbor over unfair tea taxes, it’s only fitting for the Securities and Exchange Commission to take a step for greater tax fairness. With a small yet meaningful structural change, the SEC has delivered a major tax break to millions of people investing to build wealth.
In late September, as a government shutdown loomed, the SEC initiated a watershed change to allow what are known as “exchange-traded fund share classes” to be grafted onto traditional mutual fund structures. That story was overshadowed by government gridlock, but as the SEC grants the largest wave yet of ETF-share-class relief, the benefits of this change merit fresh attention.
Mutual funds and ETFs, which offer similar value propositions, will be familiar to many savers and investors. Both are efficient vehicles that allow everyday investors to build wealth through investing in public company equities, bonds and, more recently, digital assets. The primary difference is that ETF shares trade on stock exchanges throughout the day, while mutual fund transactions happen once a day, at market close.
ETFs and mutual funds also differ significantly in their structure, especially when it comes to tax liability. Many mutual fund investors are all too familiar with the unpleasant year-end tax surprise that can result from a fund selling securities to meet redemptions from some exiting investors and passing on the resulting capital gains — and the associated tax liability — to the fund, and thus to all shareholders, even those who did not redeem their shares.
Unlike mutual fund shareholders, ETF investors do not usually bear the tax burden of other investors’ redemptions. When ETF investors exit their positions, they sell to others in the general stock market, which generally does not trigger a tax bill for other investors.
Now, by allowing fund sponsors to offer these products, the SEC is enabling more sponsors to combine these two approaches with appropriate protections. That will allow more mutual fund investors to access the favorable tax efficiency of ETFs.
While it’s too early to say with certainty how this will unfold, it is not unreasonable to anticipate a decidedly significant capital gains tax reduction. The Investment Company Institute (ICI) has estimated that nearly $175 billion of capital gains distributions were allocated from mutual funds held in taxable accounts in 2024, so it’s clear that this change has the potential to deliver tremendous tax savings to investors.
And notably, many of those savings would flow to ordinary families. According to ICI’s 2024 data, approximately 54 percent of U.S. households — or more than 120 million individual investors — hold mutual funds in retirement and nonretirement accounts, representing nearly one-quarter of those households’ financial assets. These are our family members, friends and neighbors, and they are more likely to drive a minivan or a pickup truck than a luxury sports car.
When I stepped into my role as SEC chairman, I pledged a new day at the SEC — one in which we return to our core mandate and prioritize investor protection and prosperity above outdated constraints. Today marks progress in realizing that vision. By embracing innovation, we are pioneering historic tax relief for American investors — today and for generations to come.
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