The following is TCS Host James K. Glassman’s testimony before a hearing on the President’s Economic Growth Proposals before the Committee on Ways and Means of the U.S. House of Representatives. The Honorable William Thomas, chairman, was presiding.
Mr. Chairman and members of the Committee:
My name is James K. Glassman. I am a resident fellow at the American Enterprise Institute and host of the website TechCentralStation.com. In addition, for more than 20 years, I have been writing about personal investing as a columnist for The Reader’s Digest, Worth magazine, the International Herald Tribune, New York Daily News and many other publications. I am currently a syndicated financial columnist for the Washington Post and am the author of two books on investing. The more recent, The Secret Code of the Superior Investor (Crown), was recently named one of the 10 best financial books of 2002 by Barron’s.
A major focus of my work has been the impact of public policy, including tax policy, on small investors. With several associates, I am in the process of establishing a new organization that I will chair, Shareholders United, which will represent the interests of small investors.
Today, speaking only for myself, I will address the effects of President Bush’s tax-reduction proposals, which I believe are highly beneficial. But, in order to assess the full impact of those proposals, it is first necessary to examine the sweeping changes that have occurred in the investment environment in the United States.
The Rise of the Shareholder Society
Over the past 20 years, personal investing has undergone a democratic revolution, creating what Robert J. Samuelson of the Washington Post called “one of the great social movements.”1 In 1983, only 16 million households owned stocks – either as individual shares or through mutual funds. By 2002, the figure had climbed to 53 million households. In other words, roughly half the families in the United States are owners of American businesses listed on the major exchanges.2
Of all U.S. stockholders, 89 percent own at least some stocks through mutual funds, which are also vehicles for the ownership of bonds and other debt securities. The proportion of households owning mutual funds of any sort has risen has risen from 6 percent in 1980 to 50 percent in 2002.3
Ownership of financial assets has broadened dramatically. For example, the fastest-growing demographic sectors for mutual funds are: 1) families making between $25,000 and $35,000 a year, where the proportion of fund ownership went from 28 percent in 1998 to 36 percent in 2002, and 2) households headed by persons aged 25 to 34 years old, where fund ownership over the same period rose from 42 percent to 48 percent. Currently, 48 percent of households with incomes from $35,000 to $50,000 own mutual funds, as do 57 percent of households headed by a person aged 35 to 44.4
Similarly, a recent Federal Reserve report found that the median value of mutual funds held by non-whites and Hispanics in 2001 was $17,500; the value of stocks, $8,000; bonds, $7,600; and certificates of deposit, $9,000.6 The Fed data show that, for the average American family, financial assets now comprise 42 percent of total assets, compared with 32 percent 10 years ago.5
In other words, investing is no longer the exclusive domain of the white, the rich and the middle-aged.
Ownership of financial assets has continued to thrive despite the sharp decline in stock prices over the past three years.7 For example, the benchmark Standard & Poor’s 500-Stock Index lost 9 percent of its value in 2000 and 12 percent in 2001, but the number of households owning mutual funds rose between January 1999 and January 2002 from 49 million to 53 million.8 Those are the most current ownership figures available, but we know that in 2002, investors withdrew a net of $27 billion from equity mutual funds – only about 1 percent of the total assets of those funds – despite the worst year for stocks since 1974. Investors also added a net of $140 billion to bond mutual funds.9
This revolution has brought a profound change: Americans no longer simply work for owners of capital assets; they are now owners themselves. “As capitalism expands,” wrote my colleague Ben J. Wattenberg, “a lot of ‘them’ become ‘us.’ [Stock ownership] brings us all together as stakeholders in common.”10 In 1977, the year before the 401(k) was created, there were 298 work stoppages that idled 1.2 million workers for 21.2 million working days. Twenty years later, there were only 29 strikes that idled 339,000 workers for 4.5 million working days.11 In addition to encouraging cooperation, ownership of financial assets “appears to have