A week's vacation in Cancun does not make one a member of the leisure
class. Likewise, owning a few shares of stock is no ticket into anything Wall
Street would remotely regard as the investing class. But the Bush administration
would like to convince working folk that they are in the club.
Its motives are simple. Conservatives have been remodeling the tax code to
move the burden off investment income and onto the earnings that people sweat
for. The more Americans fancy themselves players in the stock market, the easier
it will be to sell them on tax breaks for investors. Right now, the administration
is pitching an extension of the 15-percent tax rate on capital gains and dividends.
Thus, we have Treasury Secretary John Snow asserting that the "typical"
investor is "a middle-class person saving for retirement with a household
income of about $65,000."
Snow's number is no doubt correct, in a sleazy technical way. But lest you
think that lenient treatment for capital gains and dividends constitutes the
people's tax cut, consider these other numbers, compiled by the Center on Budget
and Policy Priorities:
-- Only half of all American households have any investment in the stock
market. And nearly two-fifths of the stocks they hold are in 401(k) plans,
IRAs or other investments that are already tax-preferred.
-- Only 17 percent of households in the bottom 60 percent of income own any
taxable stock. The average stock portfolio for this group is $52,000. The
average holding for the top 1 percent of households is $2 million.
-- Over half -- 54 percent -- of all capital gains and dividends subject
to taxes go to households with annual incomes exceeding $1 million. And over
78 percent go to households making over $200,000.
-- Only 12.5 percent of households earning less than $100,000 received taxable
dividend income, and half as many made money from capital gains.
How little money the typical American family actually has invested is eye-opening,
even in the Cadillac of tax-advantaged accounts, the 401(k). The median balance
in 401(k) accounts is now $15,000, according to the Pension Rights Center. For
people between 55 and 65, the median is only $23,000.
Back to how Treasury Secretary Snow gets his number: Many more families make
$65,000 than $200,000, so that even if a far smaller proportion of them own
stocks, they can still be portrayed as "typical" investors. And again,
he skates past the size of their holdings.
Snow would have better served the goddess of honesty had he simply divulged
which groups would most enjoy the extended investment-tax cuts. So we'll have
to do it for him: By 2009, 72 percent of the benefits will go to households
with incomes above $200,000.
Some ordinary folk may respond to this with "Yes, the rich are getting
most of the breaks, but why should I care?" Good question, but there is
an easy answer: Because someone has to bear the cost of government. If people
in the upper incomes are paying fewer taxes, others have to pay more.
The consequences of letting investment income off the hook have been hidden
so far, because rather than raise revenues the old-fashioned way -- through
adequate tax collections -- the administration has been borrowing the dough.
Eventually, the bills will have to be paid, and guess who will be the payer,
under the changed tax rules.
Not everyone has been oblivious to these goings-on. Religious conservatives
have long smelled a rat. "People are not going to give the kind of support
necessary for tax reform that leaves the investor class untaxed," Dr. Richard
Land, of the Southern Baptist Convention, has said. Note that he makes a distinction
between "people" and "the investor class."
In addition to trafficking in misleading statistics, the administration practices
the psychology of salesmanship -- with special attention to the technique of
flattery. Guys with $18,000 in their IRAs must feel swell hearing the president
refer to them as members of "the investor class." Who among us doesn't
want to imagine that we're playing the same game as Warren Buffett?
Let us part with a warning to the "typical" investor making $65,000:
Feel flattered if you wish, but don't get rolled by tax cuts for the rich.
Froma Harrop is a Journal editorial writer and syndicated
columnist. She may be reached by e-mail at: firstname.lastname@example.org.