By Scott Sipprelle
But President Jimmy Carter had an idea. He believed an increase in the capital gains tax to match the marginal tax on income made sense not only as a matter of economic policy, but also as a matter of fairness in order to stop the giveaway to “fat-cats.” The President of the American Electronics Association had a different idea, grounded in his experience as an entrepreneur. He traveled to Washington looking for an advocate to embrace an entirely different approach. The way out, he believed, was to slash capital gains taxes in order to encourage risk-taking investments in innovative new companies that would capitalize on technical developments across a broad cross-section of American industry. Why would anyone invest under a regime where if you lose, you keep 100% of your loss, but if you succeed the Federal Government takes 50%?
A baby-faced young Republican Congressman from Wisconsin, Bill Steiger, eagerly took up the cause. Originally elected to the Wisconsin legislature at 22, he had been the youngest member of Congress when first elected in 1966 at age 28, and frequently mistaken for a page. Steiger was a conservative, but molded in the Lincolnian tradition that government needed to do the, “desirable things which the individuals of a people cannot do, or cannot well do, for themselves.” Steiger had sponsored the legislation which created the Occupational Health and Safety Administration (OSHA) in order to address the unacceptable rate of annual on-the-job deaths (14 thousand) and accidents (over 2 million) that characterized the American workplace of the early 1970’s.
Steiger embraced capital gains reductions with a passion, offering a counter-proposal to slash the capital gains tax by 50%. Despite harsh attacks that portrayed the proposal as a program to benefit the rich, Steiger fought back hard, not on ideological grounds but by the use of hard empirical data. Even President Carter’s Head of the Office of Science and Technology Policy admitted that more than 300 high-technology companies had been started in 1968, when capital-gains taxes were low, and by the mid 1970’s there were no similar start-ups whatsoever.
Against all expectations, the political climate on capital gains taxes changed dramatically. To even Steiger’s surprise, he was able to garner enough Democratic support that President Carter ultimately signed the Steiger Amendment into law in November 1978, effectively slashing the capital gains tax to 28%. Tragically, Bill Steiger died of a heart attack at age 40, a mere month after his legislative milestone became law.
Within several years America was experiencing an innovation boom of historic dimensions. Venture capital funding, which had bounced along at $50mm per year in the 1970’s exploded to over $1 billion per year. Iconic American companies like Apple Computer, FedEx, and Sun Microsystems were launched. America’s technology revolution, which would change the destinty of the nation and the planet, had as its seed the wise tax policy promoted by a forgotten Congressman.