Evening star., 1949-12-06
Why the Investment Lag?

Why the Investment Lag?
Speaking as chairman of the Joint Con-
gressional Economic Committee, Senator
O'Mahoney has called attention to
situation that Is becoming increasingly
threatful to the future of free enterprise
in America.
The situation revolves around the fact
that people have been growing more and
more reluctant to invest their money-on
risk taking basis-in new and old busi-
nesses and industries. Such investment
known as venture capital"-has been the
lifeblood of our private capitalistic system,
and it is still very much needed Yet,
despite the need for 1t, its flow has slowed
down seriously.
Thus, as Mr.. OMahoney has put It, the
testimony of experts seems to indicate
clearly that the majority of people with
savings are more desirous OF security for
those savings than they are for large
profits from new ventures, or even from
old ventures. They are therefore investing
most of their savings in Government bonds,
in life insurance policies and in savings
banks" In other words, they are taking
that have played an indispensable role
in the expansion of our free-enterprise
economy.
As a measure of the publics security
mindedness, Mr.. O'Mahoney has cited the
fact that the American people, while put
ting out less and less venture capital, have
invested about $47 900, 100000 in life in
surance-an increase of more than $685.
600 ,000, 900 since 1880. At the same time,
they have invested approximately the same
amount of money in United States Savings
Bonds. The figures reflect play-it-safe
frame of mind that does not augur well
for our capitalistic system, whose health is
largely dependent on the ability Of private
business to raise money by selling common
stocks to individuals.
OMahoney's committee is about to be-
gin hearings in an effort to find the cause
of this investing apathy and to determine
what, If anything, can be done to end 1t.
Actually, there appears to be no single or
simple explanation for it. As pointed out
to the committee last summer by Chair
man McCabe of the Federal Reserve Board,
it stems in part from the failure of business
itself to acquaint potential small investors
with the advantages OF stock ownership.
Another of the factors accounting for it
is a tendency among many companies to
be too niggardly in paying dividends out
of profits.
As for the main cause of the situation,
however, Mr.. McCabe-among others-has
indicated that it may be found in our level
of taxation. That taxation-local, State
and nationals now eating up about
Is per cent of our total income, with almost
three -fourths of this huge "take" going
to the Federal Government. Certainly, If
they cannot hope for sizable returns, or If
they must expect most of their dividends
to be taxed away, Americans are not going
to be disposed to make sk-taking invest
ments in private business. There simply
is not enough incentive in such circum-
stances.
That is why Mr.. McCabe has suggested
the possibility of making incentive Great
ing changes in the tax laws, including q
lowering of rates in the upper income
brackets and modification of the present
double taxation on corporation earnings
and on the dividends declared out Of those
earnings. Presumably the OMahoney
committee (Mr. OMahoney himself is at
least opposed to increasing present levies)
will deal sympathetically with all such sug-
gestions in its forthcoming hearings
In any case, there can be little doubt
that taxation has an important bearing on
the lethargic flow of private investment.
Considering that various Government COL
lectors are now taking about 81 out Of
every "a OF his own earnings, 1t is not
surprising that the average American Is
reluctant to risk his money on enterprises
that are also heavily taxed. The situation
should be looked at most carefully by
Congress.