|
 hat
to make of a growing trend of front-page, thousand-plus-word New
York Times features stating the obvious.
There was,
of course, the much-hyped “investigative” piece by reporters who
were shocked — shocked! — to discover post-election Republican
operatives in Florida fighting to include the absentee ballots of
overseas military personnel. Then, with less fanfare but potentially
greater ramifications, the Times “made” news again on July
9. During the same period when the S&P, Dow Jones, and Nasdaq indexes
lost in the range of 300, 1,000, and 3,000 points respectively,
this feature revealed that, surprise — surprise! — “401(K)
accounts are losing money for the first time.”
Where the
Florida post-election story posed little difficulty for deciphering
an ulterior agenda — namely, undermining the legitimacy of
the Bush presidency — the declining-401(K) story left absolutely
nothing to chance. It explicitly noted in paragraph two, lest there
be any confusion, that the popular retirement savings plan’s troubles
are “raising some questions about proposals to permit Americans
to manage part of their Social Security accounts.”
I’ll leave
for another time my spirited defense of individual-empowerment and
investment-based reforms for Social Security. For now, there's a
curious opening made by the New York Times that begs immediate
exploitation. While the 401(K) story presents a fairly strong argument,
but not in the manner it intends, to question the advisability of
partial privatization of Social Security, it also makes a much stronger
case for why capital-gains tax rates need to be reduced, and soon.
To truly understand
the story-behind-the-story of activist journalism it’s often helpful
to ask on whose behalf the journalist is “acting,” and pay close
attention to the language the journalist employs. In a piece that
examines the shortfalls of increasingly popular employee-chosen
investment plans as an ideal model for retirement savings, the presumed
beneficiary of this news is the employee-investor purportedly getting
the short end of the stick. Partly because of the nature of employer-sponsored
401(K)s, it’s highly significant that in order to make his point,
the writer refers to "investors" by using the word “workers” —
a full eight times. Therein lies the opening.
If the writer
truly hearkens to a populist concern for the interests of “America’s
working men and women,” particularly their future retirement security,
it would make sense, in a world where the word “workers” grows evermore
synonymous with “investors,” to advocate policies with actual positive
impact on the worker's potential prosperity. In other words, to
the extent that “investor class” becomes a meaningless term, so
too grows the populist appeal of capital-gains tax cuts.
The statistics
on recent investor demographic shifts are staggering. We know, for
instance, that 80 million Americans, or some 50 percent of all U.S.
households, are now participating in the financial markets in one
fashion or another. Prior to 1995, no one could trade online. Now
there are approximately 806,000 trades made daily by investors with
a demographic profile that alters historic perceptions. If pension
funds alone were valued as an economy, the country called Pension
Fund would be the fifth largest economy in the world. With annual
income averaging $60,000, and household assets under $50,000, it
is precisely the “working families of America” who are now generating
extraordinary capital flows to the markets.
It’s also
these selfsame working families who would benefit greatly from reduced
rates of taxation on capital gains. Basic market history shows us
how.
Take for example
the fact that September and October are historically the worst months
for stock performance, primarily because, it would seem, all mutual
funds are taxed on a fiscal year ending October 31. Or, as a recent
Reuters story explains, “mutual fund companies typically sell losing
stocks in the September-October period to offset capital gains from
winning stock picks … [and] … individual investors start bailing
out as stocks decline, further depressing the market.”
If this tax-induced
disincentive for investing weren’t bad enough, it’s even worse during
downturns like this year, when, according to experts cited by Reuters,
“tax selling could prompt some fund managers to jettison their best-performing
stocks to take whatever advantage there is in incurring losses.”
The implication
here is as simple as it is devastating. Our current economic flatline
is mainly due not to consumer spending, which remains steady,
but to exceedingly squeezed levels of the kind of investment capital
that fuels job creation, business expansion, and technological advancement.
Federal tax policy on capital only exacerbates the problem and moves
the market to actually punish the most promising enterprises. This,
as we say in Louisiana, is just plain “bass-ackwards.”
Perhaps more
appropriately, we must give the financial circle the freedom to
make itself complete. Reducing capital-gains tax rates would not
only relieve short-term pain for America’s individual worker-investors,
it would also jumpstart an economy starved for capital, leading,
in turn, to overall long-term market gains, the fruits of which
include the future prosperity of America’s individual worker-investors.
Necessity
says the time is now. History says the time is right. After all,
with the New York Times on the side of workers, how can we
go wrong?
|
