Democratic tax proposal targets ETFs

A top Senate Democrat has circulated a proposal that would hit the rapidly growing world of exchange-traded funds. Big money managers prepare for battle.

The proposal by Senate Finance Committee Chairman Ron Wyden seeks to tax ETFs use of “in-kind” transactions that currently avoid triggering capital gains taxes. With such in-kind transactions, ETFs – sets of securities traded on an exchange – transfer stocks, bonds, or other valued assets to Wall Street intermediaries instead of cash.