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Why are taxes on actively managed funds higher than those on index funds?
This depends on the particular index, of course. Capital gains taxes occur when stock is sold (for a profit). This occurs less frequently in an index fund: Where an active manager frequently buys and sells stocks (after all, he wants to be active :-) ), the index fund only sells stocks when the particular stock leaves the index. For an index such as the S&P 500 this does not happen that often.  The more specific the criteria of the index fund, the more often the selling of stock and thus the need to pay capital gains taxes occurs.