ERIC Number: ED317681
Record Type: RIE
Publication Date: 1989-Sep
The Tax Treatment of Training and Educational Expenses. Background Paper No. 14.
Quigley, John M.; Smolensky, Eugene
For those students incurring direct educational expenditures that are high enough, the current personal income tax will discourage investment in human capital, assuming tax rates are essentially proportional over the relevant range. In all probability, however, any distortion between investment in human and physical capital is quantitatively small. This suggests that distortions among different types of education and training under the personal tax code are more important. Under the corporate tax code, human capital and research and development might be favored over investment in physical capital within the firm. However, because firms have little incentive to train their workers for new jobs outside the firm, the distinction between current job and noncurrent job is also relevant in the corporate tax analysis. The current tax code requires firms to treat differently their costs for physical and capital investments, investment in research and development, and human capital development. If it is administratively not possible to amortize the costs of human capital development against future earnings, at least they should be treated comparably with research and development costs. Under the personal income tax code, all investments in education should be immediately and fully deductible by individuals against the current wages and salary of the trainee. They should be deducted on Schedule A of the federal income tax form rather than be subject to a 2 percent expenditure floor. The deduction should be phased out with higher total reported income and allowable against earned income only. (The document contains 36 references.) (CML)
Publication Type: Information Analyses
Education Level: N/A
Sponsor: Department of Labor, Washington, DC. Commission on Workforce Quality and Labor Market Efficiency.
Authoring Institution: N/A
Grant or Contract Numbers: N/A
Note: In "Investing in People: A Strategy to Address America's Workforce Crisis" (CE 054 080).