The pace of change is accelerating. We are in the midst of a digital revolution, and, let's admit it; we are in a new era. One innovation follows another-personal computers, fiber-optic cables, fax machines, the Internet, cell phones, CDs, DVD players, … the wonders never cease. And the best technologies are yet to come.
Big social changes often occur under the radarscope but are equally important. For example: almost one in two households own individual stocks or mutual funds today, according to a recent survey by the securities industry. That's up from only one in five in 1983 and the trend shows no sign of letting up. And wealth creation for many market participants has been spectacular in the '90s.
The implications of our emerging democratic capitalism are enormous. Once-impossible dreams of "every man a capitalist" now appear attainable. If most workers and retirees become heavily invested in American business, the political fall-out will begin with termination of class-warfare rhetoric and politicians who rely on such demagoguery. As financial independence replaces fear and dependency, new Democrats inevitably will replace old (tax and spend) Democrats.
Presidential candidates are talking about big new government programs to pull children out of poverty, or "prosperity with a purpose" which relies on faith-based groups to minister to the poor. But a new-and-improved welfare state largely misses the point for most Americans. Real hardship is already declining in our land of abundance. Instead of finding more Americans to treat as victims, let's lower barriers to independence and affluence. A good place to start is to find three or four things can we do to encourage the other 50% to become capitalists too.
First, cut taxes, any taxes. Right now, federal taxes alone are a staggering 21.9% share of GDP, an all-time record. The Congressional Budget Office says that federal taxes will stay above 21% of the economy for as far as the eye can see. If a larger share of income were left in private hands, it would mean more saving, investment and wealth.
Second, cut taxes on saving and investment, thereby raising after-tax returns and making investment more attractive to everyone. Good examples include abolishing the capital gains tax and death taxes.
Third, privatize Social Security. If each worker had a personal investment account for part or all of his or her Social Security payroll taxes, there would be an immense gain for individual security, especially for the lower income members of the work force, as well as the economy generally.
Fourth, shift the tax break for health insurance and health care spending from employers to individuals and families. Combined with tax-free medical savings accounts, this would make health insurance portable and affordable and put patients back in charge. Most individuals would accumulate tens of thousands of dollars in medical savings accounts over their lifetimes, a fund to provide for their own medical care in old age and an estate for their heirs. Medical savings accounts would not only revolutionize and rationalize our out-of-control health care system, but make nearly everyone a capitalist.
Another benefit of a growing investor class will be more democracy. A major reason for declining voting and apathy about politics today is that the top 5% (income of $108,000 and up) pay over half of federal income taxes while the bottom third pay nothing and the bottom half pay only 6% of income taxes. People with an economic stake in the outcome vote more often and political participation will grow with more asset ownership.
Every political action and vote determines whether we move a little bit right or left. President Clinton vetoed the Republican bill to cut taxes a few weeks ago. The fault lines on tax policy are pretty clear. Let the voters decide next November.
Our fluid and dynamic economy is creating higher living standards and opportunities for most of us. Let's widen the opportunities for more and more Americans to become wealthy and achieve financial independence.
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The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.