The quiet entrenchment of our investment class.

On a glorious day in mid May on the South Lawn of the White House, President Bush signed a bill that extended two of his tax initiatives from 2008 into 2010. That may appear a small thing, but it was a manifestation of a much larger political, economic, and social change: Most Americans are now investors.

During the President's first term, Congress passed laws that reduced personal income tax rates across the board, phased out the estate tax, cut the top rate on dividend payments from 35 percent to 15 percent, and trimmed the top rate on capital gains from 20 percent to 15 percent.

The personal and estate tax changes expire at the end of 2010--at which time Cinderella's coach turns into a pumpkin, and rates revert to what they were in 2000. The dividend and capital gains changes had been set to expire at the end of 2008, but thanks to the May bill signing they too will now end in 2010.

With less than six months before a critical election, it's remarkable that such a bill would pass. The forestalled tax rise comes after three years in which the federal budget deficit has totaled more than $1.1 trillion, making both parties itchy to appear "fiscally responsible." The New York Times characterized the action as "almost $70 billion in tax cuts, mostly for the nation's wealthiest taxpayers." I would have described the congressional action as preventing $70 billion in tax increases, but it's true America's wealthiest will benefit the most because they do the vast bulk of our investing and taxpaying.

There are two reasons the bill passed despite the easy openings for demagoguery. The first is that more members of Congress have come to understand that reducing taxes on invested capital spurs economic growth. The second is that 57 million American households (out of a total of 113 million) owned stocks in 2005. That's up from just 16 million in 1983. Stock ownership has grown 15 percent just since 1999, despite the dot-com/9-11 stock market contraction, the worst since the Great Depression.

Senate Minority Leader Harry Reid (D-NV) couldn't have been more wrong during the May signing, when he argued ...