Angela Alsobrooks

Imagine getting a bill from the IRS for money you never received. No windfall, no paycheck, no bonus — just taxes owed on money that was automatically reinvested into your savings account.

It sounds absurd. But for those who invest in mutual funds, it happens every year. It’s a phantom tax that seems like a mistake until you realize it’s been hiding in our federal tax code for decades.

About 40 million Americans can potentially face this tax annually. That’s because every year, mutual funds are required to share any profits they’ve earned with their investors. Even if you never touch that money — even if it goes straight back into the fund — the IRS still wants its cut. You never see the cash, but you still get a bill. That’s money meant for your retirement, being sent away despite trying to do everything right.

What makes this sting even more is the double standard. For every other common investment, you don’t pay capital gains taxes until you decide to sell. That means big investors get to avoid paying their tax bills. Mutual fund investors don’t have that choice. A tax code that steers people toward one investment product over another based on arbitrary tax rules isn’t just unfair — it undermines the whole idea that Americans should be free to build wealth however works best for them.

In Maryland, this hits especially close to home. The state has one of the highest concentrations of federal employees in the country — roughly 1 in 10 Maryland workers are employed by the federal government, including tens of thousands of nurses, scientists, engineers and public servants. These workers are exactly the kind of middle-class savers — the typical mutual fund investor earns around $125,000 a year — who rely on mutual funds to build retirement security outside of their federal pensions. They invest a little at a time and reinvest what they earn with the goal of creating a secure future for their families.

The costs add up quietly. Every dollar paid in taxes early is a dollar that isn’t being saved. Over a decade, that drag can amount to thousands of dollars in lost growth — real money that could have paid for college, covered medical bills or simply been a buffer for life’s emergencies. In fact, one industry analysis found that a $10,000 investment would grow to roughly $52,000 under a fairer system — compared to about $47,000 today. That $5,000 is a semester of tuition, a car repair, a year’s worth of grocery bills.

The good news is the fix already exists. It’s called the GROWTH Act, and the premise is simple: Investors don’t pay taxes on reinvested mutual fund gains until the day they actually sell their shares. The tax doesn’t disappear — it just gets delayed until the investor actually has the money in hand. No more hypothetical nonsense; people pay what they actually owe, no more, no less.

More than half of middle-income American households now hold mutual funds — up sharply from two decades ago. Working families have embraced this investment tool, often using the same funds in their taxable savings accounts that they already hold in their 401(k)s.

Sen. Angela Alsobrooks has shown that she understands what Maryland’s working families need. As a member of the Senate Banking Committee, she has made expanding access to capital a signature priority. Co-sponsoring the GROWTH Act is a direct extension of that work.

This is not a partisan fight. Republican Sen. John Cornyn introduced the Senate version of this legislation, and Republican Congresswoman Beth Van Duyne (Texas) and Democratic Congresswoman Terri Sewell (Alabama) are leading the House version, which now has more than 100 co-sponsors. The bill is also backed by a broad coalition from the National Taxpayers Union to the U.S. Chamber of Commerce. The argument is straightforward, the politics are favorable and the solution is simple.

Alsobrooks was elected to fight for Maryland families’ financial security. At a moment when many Marylanders are facing economic uncertainty — from federal workforce disruptions to rising costs — protecting their hard-earned savings from an unfair tax is exactly the kind of concrete, bipartisan win her constituents need. Hopefully this is her chance to deliver it and finally lay this phantom tax to rest.

Brooks Schandelmeier is a Democrat representing Ward 5 on the Annapolis City Council.