APPENDIX

The following items, one through six, were inserted in the record at the request of Senator Prouty:

ITEM 1

[From "Toward Full Employment," report of the Subcommittee on Employment and Manpower of the Senate Labor and Public Welfare Committee, 88th Cong., 2d sess., April 1964. Individual views of Senators Winston L. Prouty and Len B. Jordan]

HUMAN INVESTMENT CREDIT

With an eye on youth we passed amendments to the Manpower Develop ment and training Act, which would extend many of its benefits to our young people. At the same time we did not neglect the older workers. We propose that we follow the course set by this program and the philosophy of the tax bill and give private enterprise every opportunity to help us solve this problem. Accordingly, we recommend that employers be given a tax credit equivalent to the magnitude of the credit extended for investment in personal property under the Revenue Act of 1962 for investments in our human resources.

We propose, also, that an employer be allowed a credit against tax of 7 percent for sums expended by him in training or retraining any of his employees about to be displaced by automation or mechanization. Second, we propose to allow an employer a 6-percent credit against tax for sums expended for the training of new employees for job skills needed within the industry. These credits shall be allowable only if immediately subsequent to the conclusion of the training period, the trainee becomes gainfully employed by the training employer.

Secretary Wirtz has estimated that average retraining cost amounts to about $1.000 per trainee under the manpower development and training program. This would result in a tax credit of from $60 to $70 per employee, or a revenue loss of only $120 to $140 million for training or retraining 2 million workers. According to a paper prepared by the Legislative Reference Service this revenue loss would be cut by about 40 percent if that portion of the training expenses allowed for a tax credit, 7 percent, were not also allowed for deduction purposes. The merits of the proposal are self-evident. A man would be employed for a job that needed to be filled. What training he lacked could be provided by the employer with a view toward his particular needs. There would be no redtape, no administrator, no office buildings, no staff, no counsel; in fact, no bureaucracy needed to run this program. The employer would benefit by having a vital vacancy filled with some tax relief for bearing his share of this great national burden.

ITEM 2

[From the Congressional Record, Feb. 17, 1965, pp. 2702-2704]

HUMAN INVESTMENT ACT OF 1965

Mr. PROUTY. Mr. President, on behalf of myself and the junior Senator from Idaho, Mr. Jordan, I introduce, for appropriate reference, a bill to amend the Internal Revenue Code of 1954 to allow a credit against income tax to employers for the expenses of providing training programs for employees and prospective employees. I ask unanimous consent that the bill remain at the desk for a period of 1 week in order that Senators who wish to do so may join as cosponsors.

The ACTING PRESIDENT pro tempore. The bill will be received and appropriately referred; and, without objection, the bill will lie on the desk, as requested by the Senator from Vermont.

The bill (S. 1130) to amend the Internal Revenue Code of 1954 to allow a credit against income tax to employers for the expenses of providing training programs for employees and prospective employees introduced by Mr. Prouty (for himself and Mr. Jordan of Idaho), was received, read twice by its title, and referred to the Committee on Finance.

Mr. PROUTY. Mr. President, 21⁄2 years ago Congress passed the Revenue Act of 1962, a measure that I was happy to support.

In his testimony advocating the enactment of that measure, Secretary of the Treasury Douglas Dillon told the Senate Finance Committee:

"The central element in this bill is the tax credit for investment in depreciable machinery and equipment. This matter has top priority in the agenda for tax reform."

Mr. President, this bill is patterned after the central element of that Revenue Act of 1962, but with an important change of emphasis. Where the act of 1962 offered businesses a tax credit for their investment in machinery and equipment, this bill would offer them a tax credit for something even more important-their investment in human beings.

For some years now Congress has evidenced a genuine concern for the upgrading of the skills of America's labor force to meet the job demands of an increasingly technical, automated industrial economy. Results of that concern have been, most notably, the Vocational Education Act of 1963 and the Manpower Development and Training Act of 1962. These bills in particular were milestones in the history of congressional concern for education, and I am proud, as a member of the Senate Subcommittee on Education, to have had the opportunity to contribute to their drafting and to urge their adoption on the floor of the Senate.

But valuable as these programs are, they are not enough. The steady march of automation and advanced technology-made possible by the genius of the American system of free enterprise-is constantly lifting the levels of skills that the men and women in our labor force must acquire. Workers temporarily displaced by technological progress must learn new and urgently needed skills to continue their contributions to the progress of our Nation, and to provide themselves and their families with a decent and rising standard of living. Unskilled workers must become semiskilled; the semiskilled must become skilled. New entrants into the labor force-mainly youths in the process of learning productive skills-are increasing its size by about 1.2 million workers a year. By the end of this decade, when the full impact of the post-World War II baby boom is felt in the labor force, the net annual increase in new workers is expected to rise to over 1.4 million. Few national goals are more urgent than that of insuring that the skills of America's labor force rise to meet the challenge of our advancing technology.

To help us effectively meet the employment challenges of the sixties, I propose that, in addition to these programs we have already enacted, we enlist in the fight nothing less than the strength and vigor of America's free enterprise system itself.

My bill, entitled the Human Investment Act of 1965, would offer an incentive to American business and industry to invest in the improvement of our Nation's invaluable human resources. Basically, the Human Investment Act offers an employer a Federal tax credit of 7 percent of his expenditures for the training of his current or prospective employees. The act is in the form of an amendment to chapter 1 of the Internal Revenue Code.

The training expenses for which a tax credit would be granted include, but are not limited to, expenses for the purchase or lease of books, testing and training materials, and classroom equipment and related items, and expenses for instructors' fees and salaries. In addition, an employer could receive credit for a reasonable portion of the overhead expenses involved in training programs, determined by regulations prescribed by the Secretary of the Treasury.

Four other types of tax credits-those relating to foreign taxes paid, particularly tax-exempt interest, retirement income, and investment in certain depreciable property-would continue unchanged as under existing law. Furthermore, amounts expended by an employer in these training programs would continue to be 100-percent deductible from his gross income.

The basic amount of the tax credit would be, as I have said, 7 percent of the total training expenses incurred. The maximum amount of the credit, how

ever, would not exceed $25,000 plus 14 percent of the tax liability in excess of $25,000.

To qualify for the credit, the employer must, in the case of trainees not initially employed with the firm, hire the trainees upon completion of their training and keep them on the payroll for at least 12 months thereafter. If the trainee is employed with the firm when his training begins, he must remain with the firm at least 12 more months for the employer to claim the tax credit. In case the trainee becomes disabled or dies, of course, this requirement does not apply. Only expenses which are tax deductible as trade or business expenses may be included in computing the amount of the credit.

As in the existing personal property investment credit provisions, the Human Investment Act of 1965 contains a carryback and carryover feature. If the computed credit under the act for a given year exceeds the allowable amount for that year, the excess may be applied to the earliest of the 8 years beginning with the third previous year. That is, a 3-year carryback and a 5-year carryover are permitted. An unused credit carried back or ahead may not be applied in excess of the allowable maximum credit amount for the other year.

In cases where such unused credit may not be fully used in the year to which it has been carried, the excess remaining may be carried to successive specified years until it has been completely applied. Language is also included to provide that, where a net operating loss carryback is involved, credits carried back under this act shall not result in a tax amendment for any year more than 3 years in the past. In all these carryback and carryover provisions my bill is almost identical to the investment credit plan enacted into law by the Revenue Act of 1962.

Where the employer is not a corporation but a sole proprietorship, a partnership, or an affiliated group, my bill provides that such entity shall get no more than the credit allowed single business entities. A small business corporation may elect to apportion its training expenses pro rata among its shareholders for tax credit purposes. Similar provisions apply to estates and trusts.

The cost of this bill, in the form of reduced Federal revenues, is modest. Labor Secretary Wirtz has estimated that under the Manpower Development and Training Act it costs from $1,000 to $1,250 to train one trainee. Since on-thejob training is known to cost substantially less than the specified programs under Manpower Development and Training Act, I have based my cost calculations on the lower figure in the range, $1,000 per trainee. Under my bill, the employer who provides the training would thus be allowed to claim a tax credit of about $70 per trainee. If 2 million workers were trained under the Human Investment Act provisions, the revenue loss would be in the neighborhood of $140 millionsurely not an excessive amount in view of the substantial and widespread benefits to employers, employees, and the Nation as a whole.

The merits of this bill, it seems to me, are substantial and apparent.

It would help to upgrade the skills of America's labor force.

It would train workers for jobs that needed to be filled-and it would go far to guarantee their actual employment after training.

It would encourage training right on the job, supervised by the employer with a constant attention to his own specific needs.

It would insure that the new trainee would not have to move to accept a job after the training period-he would take a job in the same community with the same employer.

It would require no elaborate public training centers and no new Government office buildings.

It would cost practically nothing to administer; an employer's eligibility for credit would be determined as a part of the existing tax administration procedure. It would minimize redtape, staffs, counsels, advisory committees, and all the other accessories of a burgeoning bureaucracy.

And rather than creating a new, publicly administered, specialized program, my bill would harness the might of American free enterprise to the service of American workers seeking a more productive and rewarding life for themselves and their families.

Mr. President, I earnestly hope that full hearings will be held on the Human Investment Act of 1965, and that before this session of Congress adjourns it will be voted into law.

TECHNICAL EXPLANATION

This measure is patterned after the investment credit provisions added to the tax law by the Revenue Act of 1962. It is analogous to that provision in almost every respect.

The Revenue Act of 1962 provided a credit against_taxes for investment in certain depreciable property. The credit amounted to 7 percent of the qualified investment. There were, however, top limits of the credit measured by so much of the tax liability as does not exceed $25,000, plus 25 percent of the tax liability in excess of $25,000. Tax liability in this frame of reference meant the tax imposed without reference to personal holding company or accumulated earnings increments less credits against tax already provided for by law-foreign tax credit, dividend credit, tax exempt interest and retirement income credit.

In the case of a husband or wife filing a separate return the top limit is measured in terms of $12,500 of tax liability instead of $25,000 except where the spouse of the taxpayer has no qualified investment for or no unused carryback or carryover credit credits for such earlier investment to that tax year. effect of this limitation is to put the same limit on sole proprietorships and partnerships as would be imposed on corporations.

The

Affiliated groups must reduce the top limit available to them individually by apportioning the top limit among the members of the group. Once again, this provision provides that related corporations or business groups shall get no more than the credit allowed single business entities.

A carryback and carryover are provided for any year in which the credit exceeds the limitations imposed. The excess is carried back to each of the 3 taxable years preceding the unused credit year and carried over to the 5 taxable years following the unused credit year. However, the top limit applies to the amounts allowable for credit for those carryback and carryover years. For example, if the tax credit for 1969 exceeded the limitation for 1969 by $10,000 then that $10,000 could be carried back to 1966. If, in 1966 the credit allowed amounted to $25,000 and the top limit for that year was $30,000 only $5,000 of the $10,000 carryback could be applied to the tax year 1966. The remaining $5,000 of unused credit could be applied to the 1967 tax year if there was any leverage between the credit for that year and the top limitation.

Where a net operating loss carryback causes an excess of credit over the top limitation the carryback provisions on the excess for that year are not available. In other words, where a net operating loss carryback to 1968 from 1965 wiped out or reduced taxable income for that year and a credit for investment in qualified property had been allowed for that year, 1965, the loss of the credit for that year because of its excess over the top limit-which was reduced by the application of the net operating loss carryback-cannot be recouped by a carryback to the 3 tax years preceding 1965, but can only be applied as a carryover to the succeeding 5 tax years. This restriction eliminates the possibility that tax returns would be subject to amendment for a full 6 prior years-3 carryback years for net operating loss plus 3 carryback years for unused investment credit.

To this point the Prouty plan and the investment credit plan of the Revenue Act of 1962 for investment in certain depreciable property are almost identical. Under the Prouty plan credit against taxes of 7 percent is allowed instead for investment in training programs for employees and prospective employees. Otherwise, the top limitation is computed in the same way. The same treatment is accorded married persons and affiliated groups. The same carryback and carryover provisions are made and the impact of net operating loss carrybacks which reduce or eliminate the credit allowable is the same. Unlike the provisions for phasing in the credit for investment in property over the first year of the plan, however, a full credit is allowed for training expenses incurred in 1965. The sole difference of substance between the Prouty plan and the credit for investment in property is in the nature of the investment or expenditure for which the credit applies training expenses.

Under the Prouty plan training expenses on which the credit is based includes expenses incurred for training any unemployed individual for employment with the taxpayer in a job requiring skills which the individual does not possess and expenses incurred for retraining a person already employed so that he can upgrade his skills and maintain the level of competence necessary for his continued employment with the taxpayer. In other words, it includes sums spent for training an employee so that he will not be displaced by automation. Also included within the expenditures on which the credit is computed is a reasonable allowance for expenses of overhead, incurred by the taxpayer, which can be attributed to training programs. Under rules prescribed by the Secretary of the Treasury a credit shall be allowed for expenses for the purchase or lease of books, testing and training materials, classroom equipment, instructor's fees, and salaries and related items.