A little-discussed provision in the Senate tax bill could lead to a higher tax bill for millions of small investors, causing many to unload stocks before year-end to avoid those costs, The Wall Street Journal reports.
Under the Senate’s $1.4 trillion tax overhaul, investors selling partial stakes in a company would have to unload their oldest shares first, a process known as selling on a “first-in, first-out” basis.
Selling those shares usually brings a higher tax bill if the stock’s price has been rising. Some small investors are fuming that the new rule would cause them to pay much more in taxes.
“It doesn’t have the interest of all Americans in it,” says Troy Jenkins, a 39-year-old engineer in Auburn, Pennsylvania, who expects to sell his remaining stocks before the end of the year because of the tax proposal.
After the money-management industry argued that the change would make markets less efficient, the Senate said the provision wouldn’t apply to the firms that manage mutual funds and exchange-traded funds—only to their individual clients.
The House’s tax proposal doesn’t include the provision, and some lawmakers are trying to kill it. In a letter to Senate leaders on Thursday, 41 House Republicans urged their colleagues to drop the provision, saying it would amount to “massive, fundamental change that inhibits investor autonomy.”
Proponents point to a Joint Committee on Taxation estimate that the rule would raise as much as $2.4 billion over the next 10 years, starting in 2018.
The Wall Street Journal has the full story (subscription may be required).
