Debate: Should Congress End ETFs' Preferential Tax Treatment?

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Bloink: Sure, ordinary taxpayers have the option to invest in ETFs and participate in gains, but the tax benefits of investing in ETFs don’t tend to trickle down to those taxpayers. We’re talking about ordinary Americans, meaning investors that are also subject to low — in some cases, even 0% — long-term capital gains tax rates. Eliminating the tax preferences wouldn’t hurt the ordinary Americans who elect to make an ETF investment.

Byrnes: All this proposal would do is eliminate a valuable and popular tax-preferred investment strategy that benefits all taxpayers who elect to invest in widely available ETFs. It’ll never pass, and it is yet another partisan attempt by Democrats to make investment in our economy less attractive at a time when we need those long-term investments the most.

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Bloink: Eliminating the ETF tax loophole would generate the kind of revenue that we need to fund our infrastructure projects, provide a long-term solution to our current inflation problem and hold wealthy taxpayers liable for their fair share. Most proposals exempt retirement account investments, which is how most ordinary Americans hold their ETF investments in the first place. The current loophole isn’t something that Congress ever intended and should be closed.

Byrnes: If we’re trying to encourage long-term investments and give people an incentive to keep their money in the markets, this type of rule is one that we want to avoid. If the proposal passes, it means that people who make long-term ETF investments are going to start generating annual tax liability every year. That’s going to discourage them from keeping their money in valuable investments that can provide powerful long-term gains. This law isn’t going to pass and is just bad policy overall.

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