- The Washington Times - Tuesday, November 15, 2005

A brand new, hot-off-the-press survey shows the American investor class growing by leaps and bounds. In the last three years, the number of families owning stocks has risen to 56.9 million from 54.1 million, meaning nearly 60 percent of U.S. households are invested in equities today. Twenty years ago, when only a fifth of households were card-carrying members of the investor class.

The Investment Company Institute, a sponsor of the survey (based on 5,000 interviews), proclaims the U.S. has “become a society of equity investors.” The Securities Industry Association, another sponsor, believes these trends will intensify as the postwar Baby-Boom generation ages.

With the House and Senate weighing crucial votes on making permanent the 15 percent tax rates on investor dividends and capital gains, you would think our elected officials would consider the needs of America’s stock-owning families. But the Harry Reid and Nancy Pelosi Democrats continue opposing these tax cuts as only sops to the rich. Are they saying three-fifths of American families are rich? Zogby polling shows nearly all Americans — 93 percent — earning $75,000 a year or more own stocks. They can’t all be rich. And how about those earning up to $75,000 a year? In this group, more than half, or 56 percent, own shares. Of those earning below $50,000 a year — a group that in the aggregate pays very little in taxes overall — 30 percent own stocks.

The “tax cuts for the rich” argument just gets weaker and weaker as the investment class gets larger and larger.

The Republican Congress, meanwhile, can’t seem to get the job done either. Instead of winning one for the investor class, a vital part of their base, Republican politicians in Washington attack oil companies (whose shares are widely owned), renege (perhaps) on the tax-cut extenders, and come up blank on offering a strong budget-cutting plan. This is not yet a Republican crack-up, but it’s perilously close.

The good news for the GOP is that Democrats continue disrespecting investors. But the bad news is that by not enacting higher after-tax rewards for investors and job-creating capital formation in the overall economy, Republicans may alienate their most natural supporters. In recent elections, nearly 2 in every 3 voters were stock owners. Where will they turn if the Republicans they elect no longer represent them?

In a recent speech to the Washington Economics Club, President Bush again expressed his strong support for investor-class tax cuts, and also the need for additional spending cuts. But is one speech enough to make the case, and to really put the heat on Congress? I don’t think so.

Good political marketing requires message repetition. Mr. Bush must make the investor-class case again and again, day after day, as Congress considers key votes on budget and tax policy. He must give voice to the investor class, becoming their representative in Washington; their advocate general. He must make it clear to the tone-deaf Republican majorities in both houses of Congress that they risk an electoral overthrow in a year if they pay no heed to America’s stock-owning families.

It really has come to this breaking point. Individual retirement account and 401(k) owners are getting fed up with Republican recalcitrance. Nearly two-thirds of respondents to a recent CNBC poll actually believe a Democratic majority in the House would be bullish for stocks. In other words, gridlock might be better than Republican government.

Polls like this, and perhaps the Democratic gains in the election earlier this month, are bad straws in the wind for the Bush vision of ownership, individual choice and growth economics.

Investors are risk-takers and know how to trade. If they see a stock in decline, they will sell it. And they just may short the GOP unless they see a major turnaround in that company’s management and performance.

Lawrence Kudlow is host of CNBC’s “Kudlow & Company” and is a nationally syndicated columnist.

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