A credit will not be allowed on expenses which do not qualify as ordinary and necessary business expenses; nor will it be available where the trainee fails to acquire employment status with the taxpayer for at least a 12-month period or, if already employed, leaves the taxpayer's employment within a 12-month period immediately following completion of his training, except, in each instance, there the failure to employ or the termination of employment results from the death or disability of the trainee involved.

Finally, similar in spirit to the amendment of the investment credit provisions hich appeared in the Revenue Act of 1964 and which eliminated a section requiring a reduction in the value of the property, when computing depreciation to the extent of the credit taken, the Prouty plan in no way reduces or limits the deductibility of expenses of training incurred merely because a credit is also available based on those expenses. Such qualified expenses remain 100 percent deductible while at the same time a credit against tax in the amount of 7 percent of these expenses is fully allowed.


(Excerpt from the 1965 Joint Economic Report, Joint Economic Committee of Congress,

s9th Cong, 1st sess., Mar. 17, 1965. Minority views, p. 86] We recommend for consideration of Congress legislation introduced by Senator Winston Prouty, Republican, of Vermont, and Senator Len B. Jordan, Republic can, of Idaho (S. 1130), which would provide a 7-percent tax credit against business expenses for providing training programs for employees and prospective employees. Such legislation would provide a credit for investment in human resources similar to the credit which the administration supported for plant and equipment expenditures in 1962. Signed by :

Senator LEN B. JORDAN.
Representative THOMAS B. Curtis.
Representative WILLIAM B. WIDNALL.
Representative ROBERT F. ELLSWORTH.


(From the Congressional Record, Sept. 9, 1965, p. 22506 ff]


Mr. PROUTY. Mr. President, I introduce, for appropriate reference, a bill (S. 2509) which is a substantially revised and improved version of S. 1130, “The Human Investment Act,” which I first introduced on February 17, 1965. This bill

, like the earlier version, provides for a 7-percent credit against tax for certain employee training expenses of private employers. Only recently have economists begun to realize the overwhelming importance of human capital—the skills, experience, and knowledge of working men and Fomen-as opposed to financial and physical capital. One of the pioneers in this field, Prof. Theodore W. Schultz of the University of Chicago, has made a trenchant observation of the importance of human capital in his paper. “Reflectims on Investment in Man,” printed in the Journal of Political Economy Supplement for October 1962. Professor Schultz says: Suppose there were an economy with the land and the physical reproducible capital including the arailable techniques of production that we now possess in the United States, but which attempted to function under the following restraints: There would be no person available who had any schooling, no one who had any information about the economy except of his locality, each indi. ridnal would be bound to his locality, and the average lifespan of people would lhe only 40 years. Surely, production would fall catastrophically. It is certain that there would he both low output and extraordinary rigidity of economic orkanization until the capabilities of the people were raised markedly by invest"Let us now take a Punyan-like step and suppose a set of human resources twith as many but no more capabilities per man than existed as of 1900 or even

ing in them.

as of 1929 in the United States. The adverse effects on production in either case would undoubtedly be large. To continue these speculations, suppose that by some miracle India, or some other low-income country like India, were to acquire as it were overnight a set of natural resources, equipment, and structures including techniques of production comparable per person to ours—what could they do with them, given the existing skills and knowledge of the people? Surely the imbalance between the stock of human and nonhuman capital would be tremendous."

Professor Schultz has put his finger upon a crucial point-the importance to our 20th-century economy of investment in human capital.

Investment in human capital takes many forms. Every dollar spent by public bodies, by individuals and by groups in the private sector on the education of youth, on the improvement of our Nation's health, and on upgrading the skills of our labor force is an investment in human capital. It is this last aspect_upgrading job skills—that is the focus of the Human Investment Act of 1965.

As early as 1948 a major aircraft company stated in a personnel report “Recruitment of semiskilled and unskilled workers presented few problems during the year, but an increasing amount of difficulty was encountered in recruiting experienced engineers and certain types of skilled craftsmen." Those early remarks have foreshadowed what has today become one of the most critical problems facing our Nation today: the dual problem of a shortage of persons trained in critical skills, and a distressing oversupply of persons—many of them youths—who do not have the skills to move into one of these beckoning job categories.

The data to illustrate the first part of this dual problem are not hard to find. The minority of the Joint Economic Committee reported this spring that "help wanted advertising is running at a 12-year high.” The Wall Street Journal for several months has been carrying stories on the serious shortages of certain kinds of skilled workers. The July 5, 1965, issue of U.S. News & World Report carried an article headed “Growing Worry-Jobs With Nobody To Fill Them." The article begins with these remarks:

"With much talk of serious unemployment, a shortage of workers is troubling many employers. Jobs by the thousands are going begging. There aren't enough workers with the right skills. Construction, especially, is hard hit. Other employers, too, are feeling the pinch--in autos, steel, aircraft, transportation, all sorts of fields."

This same article reports that in June of this year the Department of Labor listed 30,850 positions which had been turned over to it by State employment services because the State agencies were unable to fill them. Another Labor Department survey showed that local employment offices had a total of 341,000 job openings at the end of May—the largest total since September 1952, during the Korean war. In my own State of Vermont a campaign is underway to induce Vermonters with needed skills who have moved to other States to return to Vermont to take jobs with Vermont employers.

Yet, amidst this serious shortage of qualified job applicants, the Nation is still confronted with a serious problem of unemployment. The 1965 Manpower Report of the President stated bluntly:

"Unemployment, at close to 5 percent of the civilian labor force at the end of 1964, remains our most serious economic problem."

Secretary of Labor Willard Wirtz, testifying before our Labor and Public Welfare Committee earlier this year, said:

"Four years of steadily expanding job opportunities have not brought us full employment. Some 334 millions of our citizens want work but are unable to find it. Up to a million more the hidden unemployed—would enter the labor force if the unemployment rate could be brought down. And if we look behind the average monthly figure of unemployment, we could identify almost 14 million workers who have experienced some unemployment at some time during the year."

What is the explanation for this apparent paradox of unemployment in a labor-shortage economy It can, of course, be summed up in one useful termstructural unemployment. Those who do not have jobs are not out of work because the economy is sluggish, but because they do not have the skills to qualify for the higher level jobs now going begging.

The minority members of the Joint Economic Committee, in their 1965 views, struck to the heart of our problem when they stated :

"The nature of today's unemployment problem, is no less serious because of its structural character. Indeed, persistent unemployment that falls with a special severity on particular age, education, or racial groups poses a real threat to our democratic system. Unless our efforts to attack structural unemployment succeed in enabling these individuals to lead productive lives, a growing and insurmountable gap may appear between have's and have-not's in our society, or between those who have good education and good jobs and those who have little education, inferior jobs, or no jobs at all, and who are hostile or indifferent to their society. Th increasing emphasis on high skills, on technical competence, and on expertise will increase the problem in years ahead and pose an even greater danger for the survival of our free and open democratic system. It is precisely for this reason that the attack on chronic memployment takes such high priority among our national goals."

The answer to this problem is clear, and it has been recognized by all but the most dictrinaire extremists of the right and left. Again in the words of the Joint Economic Committee minority :

"The solution to the program of technological displacement demands a broad national effort to upgrade the labor force by small stages all along the line providing the unskilled with minor skills, preparing the semiskilled for skilled work, turning the skilled into advance technicians, and rehabilitating the handicapped. Workers on all levels of the skill ladder must be encouraged and helped to move up into higher and more demanding jobs, leaving the positions which they once held to be filled by the less skilled but striving applicant.”

But even those who agree on the analysis of the problem and the general outline of the solution may yet differ on the precise means to be used to bring the solution into effect. A principal division between rival camps is along the lines of private versus public responsibility.

The advocates of increased governmental involvement in training bring to bear weightily historical precedents, dating back to the Morrill Land Grant Act of 1862, which was the first Federal grant to the States to spur vocational and agricultural education. They point to the Vocational Education Act of 1963 and its forerunners as examples of the kind of legislation that is needed to solve the structural employment problem, operating throughout the school systems of our Nation. Similarly, they support the institutional training provisions of the Manpower Development and Training Act, through which the Department of Health, Education, and Welfare enters into agreements with State agencies to pay for the cost of vocational training, usually conducted by public and private schools in the State.

On the other side, Mr. President, are those who believe that the most efficient and effective job training in this country is being done by the Nation's greatest job trainer-the American private enterprise system. Proponents of this school {wint to the Fitzgerald Act of 1937, which provided technical assistance in arranging apprenticeship agreements, and to such programs as the on-the-job training provisions of the Manpower Development and Training Aet, administered by the Secretary of Labor. Recently the Office of Economic Opportunity has experimented with this school of thought by contracting with private enterprise to operate urban Job Corps centers, like the one at Camp Kilmer, N.J., operated by Federal Electric Corp. Happily, membership in these two camps is not mutually exclusive. This Nation certainly needs a sound program of vocational training operating through our school system. At the same time, however, we must not lose sight of the fact that our private enterprise system has always been in the forefront of the training business, and over the years has acquitted itself magnificently with regard to value per dollar invested in training, the high quality of training offered, and the ability to move quickly to aid the Nation in times of danger to our national security.

We are now witnessing, Mr. President, what I believe to be a massive shift of emphasis away from institutional training programs for job skills and toward training conducted by the Nation's private employers. Less than 2 years ago the Labor Departments interest in on-the-job training by private employers was so low that John Henning, then Under Secretary, wrote Senator Clark, chairman of the Employment and Manpower Subcommittee, in reply to a query concerning suggestions for possible additional programs to provide positive incentives for on-the-job training: **There has been so little experience to date on this point that sound conclusions cannot yet be formulated."

In April of 1964, however, the Employment and Manpower Subcommittee report entitled “Toward Full Employment” was issued. In it, joined by Senator Len B. Jordan, I advocated an idea that had been increasingly on my mind since the previous year—the idea of encouraging private business to expand their training programs by offering them the incentive of a 7-percent tax credit toward their training expenses. To my knowledge this was the first time a Member of Congress had advocated the application of the tax credit principle to job training efforts by private business.

Shortly after our report came out, an article on the subject by Gerald J. Robinson appeared in Michigan State University's publication “Business Topics" for spring 1964. After analyzing our national problem of structural unemployment, Mr. Robinson said:

“This combination of circumstances points clearly to the solution: a liberal tax credit to industry for worker retraining.”

In June of 1964 the task force on subsidies on apprenticeship, under the Federal Committee on Apprenticeship, reported to the Bureau of Apprenticeship and Training:

"The task force is of the opinion that of all the financial incentives for apprenticeship examined, Federal income tax credit is best.

"Justifying this conclusion, the task force used language strongly reminiscent of my language in support of what became the Human Investment Act:

"To spur capital investment, the Congress has enacted a Federal income tax policy which reduces an employer's tax liability for any year in which he has made expenditures for certain specified capital items. After the tax is computed, a deduction is permitted equal to 7 percent of the cost of such capital expenditures. The same type of incentive could be applied to the development of skills through apprenticeship and training. The amount of such tax credit is not the most important consideration, but the 7 percent allowed for capital expenditures would serve as a tentative goal.”

On February 17, 1965, I introduced a forerunner of the bill I am introducing today, which was given the number S. 1130. In this I was joined by Senators Jordan of Idaho, Allot, Fannin, Long of Missouri, Scott, Tower, Case, and Fong.

On March 17 my proposal received influential support when the Republican members of the Joint Economic Committee specifically recommended the human investment tax credit approach.

As the summer approached, various publications began to report quickening of interest in administration circles concerning this proposal. On May 31, Lawyer's Weekly Report, a Prentice Hall publication, reported :

"One of the President's task forces is quietly weighing a number of ideas for inducing businessmen to hire and train unskilled teenagers. Some concrete proposals will be offered next year. One proposal we know being given careful study is a tax incentive for worker training."

One June 14 the same publication said :

"The administration is considering a number of measures—some stringentto get youths in the employed working force. Some of the suggestions made so far:

"Enlarge present Government-aided training programs.
"Provide tax incentives for businessmen doing youth job training."
And again on July 5, Lawyer's Weekly Report noted :

"The Department of Labor is increasingly concerned that current labor training practices do not meet the needs of the growing market for skilled workers. Consequently, the Department seems about ready to move to revise traditional standards and operating procedures of the age-old apprenticeship system-hoping to funnel more workers faster into growth industries and occupations. Ad. ministration aids point out the system is basically sound, but needs to be brought up to date." Two weeks later, on July 19, Newsweek reported :

"A significant policy switch is underway in the Government's manpower training program. Under the direction of Manpower Administrator Stanley Ruttenberg, the Government is giving increased emphasis to on-the-job training ***. In the on-the-job training programs, the Manpower Administration underwrites a share of the cost of training men at specific companies—with the jobs guaranteed. In a sense, the Government subsidizes private company training costs. But manpower officials argue that it is just as defensible to invest in people as it is in new machines with programs such as the investment tax credit."

On August 16, Lawyer's Weekly Report stated :

"Action may soon be in the offing for the much-touted plan to stimulate company training programs through tax incentives * * * Now, agencies which have been halfheartedly tinkering with the idea for years are going to pour on the coal and you will hear more and more about it in the coming weeks and months."

During these months, Mr. President, I received a great deal of comment on my initial proposal, Over 140 corporations have written me to express their views and to make suggestions. My staff and I have consulted a number of experts in the manpower field, in the tax field, and in the ranks of business. The Associated Industries of Vermont saw fit to endorse the idea, as did a local of the A.F. of L. Bricklayers Union in southern California. The result of all this discussion is the bill I now introduced, changed in several respects from S. 1130, but retaining the same fundamental principles.

The 7-percent tax credit and the technical language adapted from the investment tax credit provisions of the 1962 Revenue Act remain unchanged. Five substantive changes were made in the present measure:

First, a new "declaration of purpose” was added to make clear the objective of the bill, as follows:

"It is the purpose of this act to provide incentives to American business to invest in the improvement of the Nation's human resources by hiring, training, and employing presently unemployed workers lacking needed job skills, and by upgrading the job skills of and providing new job opportunities for workers presently employed."

Second, and most important, the concept of "employee training expenses" was significantly revised.

The initial bill specified that "employee training expenses” were to be those expenses incurred in training unemployed workers for a job with the taxpayer or in training an employee for continued employment or a better job. Specifically included were books, testing and training materials, classroom equipment and related items, and instructors' fees and salaries. It was more or less left up to the Internal Revenue Service to decide what it would or would not allow.

These provisions gave rise to the most serious objections to the initial bill. It was argued that it is very difficult for a company to specify exactly what activities would come under the heading of training and how much was spent on them. Too much would depend on the IRS, and the individual taxpayer would not have a clear idea of what he could claim. Some firms would be tempted to pad their tax returns by listing all sorts of things as training expenses to be able to claim the credit. The natural result would be excessive scrutiny by the IRS interfering in business practices and recordkeeping. Some firms reported that it would cost them the amount of the proposed credit just to isolate in their records the information needed to apply for it.

As a result of these objections, this section was completely revised according to the following criteria :

First, the eligible expenses should be those which primarily contribute to providing new job openings at the bottom end of the skill ladder; training of managerial, administrative, professional, or scientific personnel should not be the focus of the bill.

Second, the eligible expenses should be so defined as to permit ready identification in the firm's bookkeeping system.

Third. The discretion to be exercised by the IRS should be held to the miniAccordingly, six new categories of specific training expenses were spelled out:

1. The wages and salaries of workers who are apprentices in apprenticeship programs registered with the appropriate State Federal agency.

Apprenticeship agreements are in the form of contracts. If the contract meets minimum Federal standards it may be registered with the Bureau of Apprenticeship and Training or a State apprenticeship council, providing the State's standards are not below Federal standards. This makes it easy to determine exactly what dollar figure is to be used in computing the credit. Note that the wages of instructors of apprentices are not included. This is because it is often difficult to apportion a foreman's time between apprentice supervision and other duties. Where a foreman conducts a regular class, however, his salary would be included in item 6 below.

2. The wages and salaries of workers enrolled in on-the-job training programs under section 204 of the Manpower Development and Training Act.

mum necessary.

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