Individual investors are livid that the Senate Finance Committee has exempted large mutual funds from a provision in the tax bill aimed at preventing shareholders from minimizing taxes on stock sales.
The exemption was reported by The Wall Street Journal. But the provision will still hit individuals with full force, mandating that stock sellers unload their oldest shares first rather than picking the ones that are most tax-advantageous to sell.
Senators exempted the firms after some of the largest, including Vanguard Group and Eaton Vance, complained that the stipulation would hinder portfolio managers' ability to efficiently manage their funds, the Journal reported.
The provision wouldn't affect assets sold by active or passive mutual fund mangers, but would apply to individuals electing to sell portions of their portfolios in those funds, the newspaper reported.
"The idea of owning stocks, owning them for dividend, owning them for capital gains, is a great American tradition," CNBC's "Mad Money" host said. "I guess these people don't really care about the great American tradition of owning a piece of a company."
As a proponent of the provision, top tax expert at the Tax Policy Center Steve Rosenthal told CNBC that the move is designed to simplify the tax code.
"Americans want simplicity but there's a trade-off; it will cost some people money," he said.
Rosenthal is a Capitol Hill regular and has testified before the House Ways and Means Committee on the "first-in, first-out" policy. He has also made appearances before the Senate to discuss tax policy.
"I am a big proponent of this and people hate me for it, I understand that," he added. "We have a tax code that is riddled with too much complexity and this will simplify the code. It's that simple."
First-in, first-out recognizes that many investors buy shares of a company in batches over time. For example, an investor might have originally purchased a portion of a company's stock at $10 each and later purchased another portion at $20 a share. If the current share price is $15, the earlier lot at $10 a share would represent a $5 per-share gain while the second group at $20 represents a $5 per-share loss.
Following current tax law, the investor could elect to sell the shares purchased at $20 to offset other gains, mitigating the tax burden. Under the proposed legislation, the investor would have no choice but to sell the $10 shares, realizing a $5 per-share taxable gain.
Though Republicans have long claimed that their aim is to simplify the tax code, not everyone agrees that the proposed provision supports that idea.
"It's the dumbest thing I've ever seen," said CNBC senior contributor Larry Kudlow during the "Halftime Report" discussion. "Humorously, they're saying this is going to simplify. No it won't. This is going to make it much more complex."
"This sounds like some goofball revenue-raising staff thing," he added. "But you know what's amazing to me? The mutual fund industry lobby is a highly paid group: They [took the provision] out for them, but not for the rest. And that makes it even more disgusting."