Amid all the tax-cut wrangling surrounding next year's budget, House Republicans are floating yet another tax break of sorts -- this time, for mutual fund investors.

A bill introduced in the House Ways and Means Committee (from which all tax law must start) proposes to allow fund investors to defer paying tax on the long-term capital gains generated by the fund management.

Currently, investors owe tax on all capital gains generated by the portfolio manager's buying and selling. And -- as all too many of you know -- that frequently means that fund investors are socked with a big tax bill even if they haven't sold any shares and (most painfully) even if the value of their investment has actually gone down.

"This bill puts fund investors on the same footing as stock investors," says Chris Wloszczyna, a spokesperson for the Investment Company Institute, the lobbying arm of the mutual fund industry. ICI has already come out to support the bill, which was just introduced last week by Wisconsin Republican Paul Ryan.

Under the terms of this bill ( H.R. 1989 ), the long-term gains (those generated when the portfolio manager sells a stock he or she has held more than 12 months) won't be taxable until the fund investor sells his or her shares. The bill only defers taxes on capital gains; it does not eliminate them. Currently, that tax is due in the year the gains are generated.

The distribution of short-term gains still will be taxable as ordinary income in the year they're distributed.

While in the late 1990s many mutual funds engaged in a frenzy of trading that generated big short-term gains, the bulk of most mutual fund distributions are actually long-term gains, according to fund research firm Lipper, a Reuters company.

In 2002, for instance, $9.9 billion, or 10.3% of all fund distributions, were in long-term capital gains. Short-term gains made up less than half that amount -- $4.1 billion, or 4.3% of all fund distributions. (The remaining 85.4% of distributions were income or dividend distributions.)

But capital gains distributions overall have diminished -- another thing many of you know all too well. But that could mean that the timing is right for such a measure, says Tom Roseen, a Lipper research analyst. "There aren't as many capital gains generated now, so it would be relatively painless for the government," he says. "But as the market advances, the government will begin to get their tax revenue; it'll just be later, although in larger increments."

Roughly half of the $5.96 trillion invested in mutual funds are owned by investors who, on average, give up 1.5 percentage points to 1.8 percentage points every year in taxes, according to a new study by Lipper. As a result, taxable shareholders are losing up to 25% of their returns because of taxes.

Again, this bill won't eliminate the tax on long-term capital gains, but it would delay the pain. "We noticed two things in the tax study -- first, if the tax were deferred, most investors are better off," Roseen says. "But there's also a quasi-disadvantage for fund investors under the current tax law, since they don't have control over the portfolio. They could be buy-and-hold investors, but they're still taxed every year because of decisions the portfolio manager is making."

The Ryan bill is similar to another bill submitted by New Jersey Republican Jim Saxton in January. Saxton's bill limits the deferral to the tax on $6,000 in gains for married couples, $3,000 for other filers.