Back in the New Deal days. President Franklin D. Roosevelt dubbed the American worker as the "forgotten man." Times have changed: Today the "forgotten man" (or woman) is the American investor, especially the small or average stockholder who mostly is earning only a pittance on his savings.
In the last decade, over five million Americans have dropped out of the stock markets, and it is easy to see why. Over that period, stocks have averaged a return of only 2.8 to 3.3 percent, depending which index is used, or less than half the average inflation rate for the same years.
Since Jan. 1, 1977, the Dow Jones average has dived from 1004 to around 860. Faced with minuscule return and minus growth, it is hardly surprising that the public is now reluctant to invest in often risky common stocks when they can get a much higher return from guaranteed savings accounts or government bonds.
As Arthur Burns, former chairman of the Federal Reserve Board, has noted, we no longer "have a healthy environment for investment." It is drying up. "Venture capital," Dr. Burns says, "is virtually dead in our country. The spirit of innovation, of business enterprise, of capital investment," he adds, is not what it used to be.
Even administration officials who oppose the Steiger plan to stimulate the economy through a reduction of capital-gains taxes, agree with the Burns assessment. "The facts are indisputable," says Treasury Secretary Michael Blumenthal. "Our financial system is providing insufficient equity capital. We aren't investing nearly enough in productive plant, equipment and technological innovation."
The reason the tax relief proposed by Rep. William Steiger (R-Wis.) has caught fire on Capitol Hill is not because Congress is eager to further enrich the already rich, but simply because it belatedly has come to realize that something must be done to encourage economic growth and increased productivity, the twin pillars of general prosperity.
Proponents of the Steiger plan contend that cutting the capital-gains tax would raise stock prices (40 percent, according to one study), as well as generate investment, profits and employment, thus bringing the Treasury more, rather than less, revenue in the long run.
Opponents scoff at these claims. President Carter himself has referred to the drive to ease capital-gains taxes as offering "tax windfalls for millionaires." Admittedly, there are other, and perhaps more effective, ways of using tax incentives to attack economic stagnation, but the Steiger plan, or some variation of it, is the only one that now has the votes.
There is a consensus that it is at least a step in the right direction, and can possibly be followed up later with complementary measures, such as reducing the corporation income tax, eliminating or reducing double taxation on corporate earnings and dividends, raising investment tax credits and similar relief if the situation then seems to call for it.
The Steiger approach has strong backing in the Senate as well as the House, with both Sen. Robert Byrd, the majority leader, and Sen. Russell Long, chairman of the Senate Finance Committee, in its corner. Long thinks the White House has "misread the mood of the country," and a new nationwide poll confirms that opinion. It found a "strong sentiment" in favor of special tax breaks for capital gains.
One reason Congress in not impressed by Carter's talk about handouts to plutocrats, is that the immense growth of pension systems, funded largely by investment in common stocks, has shown that nearly everybody - directly or indirectly - now has a stake in business profits and dividends. It is no longer just the rich clipping coupons.
These days, when it comes to cutting the corporate pie, the stockholders get what's left after management, the employees and the tax man get theirs. The executives get up to a million dollars a year or more in salaries, often with comparable sums in bonuses and huge expense accounts, plus enormous pensions, and such perquisites as hunting lodges and private planes.
Most organized workers now get yearly pay increases, often along with additional adjustments for inflation, plus large "fringe" benefits for health and unemployment protection. Half of the Social Security contributions are also paid out of company funds, as is the case with many pension programs as well.
Finally, after local and state taxes are paid, in addition to a federal income tax of 48 percent on earnings, there is little possibility of substantial dividends. Moreover, U.S. corporations now pay out only about 44 percent of their earnings in dividends, whereas in the 1960s the payout averaged 50 to 60 percent.
In its spontaneous embrace of the Steiger approach. Congress has perceived that if there is no relief for the ordinary investor, the government could well kill the goose that has laid so many of the golden eggs of American private enterprise.