Reforming the Taxation of Human Capital: A Modest Proposal

ByPaul A. David
All Souls College, Oxford & Stanford University

First draft: 15 November, 2000
Second draft: 25 June 2001
This version: 10 August 2002

Abstract: This paper proposes a new scheme of personal income taxation that would eliminate the inefficiencies arising from differences in the tax treatment of investments in intangible human capital and other types of capital formation. It also would offset the exacerbation of those distortions caused by progressive taxation, without requiring abandonment of the latter principle. The tax regime proposed here would permit full deductibility of private costs of education and training, but defer the exercise of the deduction credits. A novel instrument for achieving these objectives is an individually held, non-transferable asset: an Untaxed, Interest-bearing Educational (expense) Deduction Account -- christened the “UIBEDA,” and pronounced: “webedda.” Under plausibly realistic assumptions about the time profile of education-associated earnings differentials, and the progressiveness of tax rate schedules, it is feasible for the Treasury adopting such a scheme to satisfy an intertemporal balanced budget constraint, while in effect acting as a financial intermediary in the market for human capital investments. The UIBEDA scheme facilitates shifting from direct educational subsidies to the use of publicly subsidized student loans, and also can be readily extended to promote selective immigration of workers who have incurred indebtedness for human capital investments abroad.

Keywords: tax neutrality, human capital investment, education and trainingsubsidies
자료: Reforming the Taxation of Human Capital: A Modest Proposal

※ 메모:
1. The Fiscal Bias Against Human Capital Formation ...