Representative Jim Saxton, chairman of the Joint Economic Committee, hopes to eliminate one of the biggest pitfalls of mutual fund investing. The New Jersey Republican is sponsoring legislation that would allow investors to annually defer capital gains taxes on reinvested mutual fund distributions. The rule changes would end the indignity investors face when they lose money in a falling market but still owe the Internal Revenue Service a check for a fund's capital gains, even if they haven't yet sold the investments. Saxton's legislation would apply to the first $3,000 of reinvested capital gains -$6,000 for couples - and would be retroactive to last year. "Mutual funds are a method of investment for people who don't have a lot of money, and therefore it would be an advantage to the middle class to have this bill passed into law," Saxton says. "It is a matter of fairness and a matter of promoting savings." According to a study that Saxton's committee released last month, the proposed changes would mean significant savings for taxpayers: $15,000 over 30 years for every $10,000 invested. Saxton introduced the bill last June, but it went nowhere, stalled by election-year politics. Now the staggering stock market has given the measure new life. Co-sponsors include House majority leader Dick Armey and majority whip Tom DeLay. Then there's the mutual fund industry, frequently criticized for being highly tax-inefficient. "Certainly, it will play in the mutual fund industry's favor," Saxton says. "How much of a boost it will give them, we'll have to wait and see." For now, the industry is keeping quiet, and the Investment Company Institute hasn't lobbied for the bill. An ICI spokesman, however, says Saxton should be "commended for identifying the problem."