Here we go again; Congress is losing steam. It began a couple weeks ago with the failure of the Bridge to Nowhere amendment and reached a tipping point last week with the stalled Budget Reconciliation Act. Now, adding insult to injury, the Senate’s prospective tax package faces a de-clawing with the removal of one of the most significant components – the extension of the dividend and capital gains tax cuts.

Naysayers contend that it’s the wealthiest households that derive most of the benefit from the cuts, but that’s just not the fact. Actually, the real impact is much more widespread.

According to a new report from the Investment Company Institute, a mutual fund trade group, fully half of all U.S. households own stocks! That’s huge!

Nearly 57 million U.S. households own stocks directly or through mutual funds, according to a survey released today by the Investment Company Institute (ICI) and the Securities Industry Association (SIA).

The growth in equity ownership among America's individual investors has been largely fueled by the expansion of defined contribution retirement plans, particularly 401(k) plans. Between 1999 and 2005, the number of households owning equities through employer-sponsored plans, which often offer stock mutual funds as investment options, grew by 5.2 million, to 37.6 million. 

Equity Ownership Among U.S. Households
(in millions)

 

 

 

 

 

"We have become a society of equity investors and defined contribution retirement plans play a central role in introducing Americans to equity investing," said Sandy West, Director of Market Policy Research at ICI. "Today, almost half of all equity owners made their initial equity investment by purchasing stock mutual funds through these plans."

"Americans clearly understand the benefits and value of investing in equities to reach their long-term financial goals," noted Frank Fernandez, Senior Vice President of the Securities Industry Association, on the growth in equity ownership through bull and bear markets. "Despite experiencing a market contraction that was one of the worst bear markets since the Great Depression, the number of individuals in the U.S. owning equities is up 5.2 percent since 2002, and up 14.4 percent since 1999."

So, it seems pretty clear it’s not just the fat cats in the penthouse that benefit from capital gains taxes. A new investor class is growing in America and they’re pumping up the economy as a whole. In fact, American Enterprise Institute economist Kevin Hassett recently stated that the stock market is perhaps 5% to 10% higher than it would be without the tax cuts on capital income.

So, if taxes are raised, that bourgeoning group will be devastated, and in turn, the entire economy will be affected.

Ultimately, everyone from Joe-six-pack to Joe-millionaire will feel the sting of this ill-advised legislation.