Washington • Invest more in people, not stuff.
That’s not a tip for achieving personal happiness. It’s a statement about economic growth.
Right now, much of the Republican tax agenda is geared toward incentivizing investments in physical capital. But that’s not where the country’s real deficit lies. What’s sorely lacking is human capital.
And if the Republican plan passes, that human capital deficit is likely to worsen.
Republicans in the House, Senate and White House argue that we need major corporate tax cuts to promote economic and employment growth. The mechanism goes something like this: If we lower taxes on returns to capital (i.e., corporate profits), then shareholders will make more capital available to businesses. With more capital available, businesses will be able to invest in more factories, robots, equipment, stores. And through that additional investment, more workers will get hired and wages will rise.
Huzzah, trickle-down at last!
Yeah. So here’s the thing. By many metrics, capital is already readily available.
Interest rates remain low by historical standards. In the most recent National Federation of Independent Business survey of small- and medium-size businesses, only 2 percent of firms said their borrowing needs aren’t being met. That’s tied with the all-time low. Long-term price-to-earnings ratios are at their highest level since the dot-com bubble, meaning equity financing is also quite cheap. And companies are sitting on mountains of cash.
None of this suggests that a lack of access to capital is holding back our economy. It suggests instead that Republicans’ proposed ginormous corporate tax cuts are a way to provide a windfall to investors and shareholders without changing any economic fundamentals. Or spurring hiring, for that matter.
What, then, might actually help grow the economy, and help workers in the process?
Skills, skills, skills.
Employers say they can’t find workers with the right skills. The average job vacancy now takes 30 business days to fill, according to a metric based on Labor Department data. That’s close to a record high. The National Federation of Independent Business survey likewise found that in October, more than half (52 percent) of companies reported few or no qualified applicants for positions they’re trying to fill. That’s also nearly an all-time high.
Worldwide comparisons also show that our workforce leaves something to be desired.
The United States is falling behind the rest of the developed world in education, and particularly postsecondary education. In 2000, we ranked among the top five countries in share of 25- to 34-year-olds who had completed postsecondary schooling, which covers anything from vocational programs to doctorates in advanced research.
Today, we’re 10th, according to data from the Organization for Economic Cooperation and Development. We also don’t seem to be building up skills in the right things. Less than a quarter of Americans age 25 to 64 with a bachelor’s degree or higher studied in a STEM field. That places us in 19th place among the 28 developed countries for which the OECD publishes data.
In a recent report on skills, the OECD noted that the United States now specializes in “technologically advanced industries, particularly more complex business services and high-tech manufacturing.” But it emphasized that maintaining this success will be challenging given growing global competition and the fact that the “skills mix” of our population doesn’t match the requirements of these industries.
The lesson here is that we need more Americans getting postsecondary education, not fewer. We need more Americans studying STEM, not fewer. And we need those Americans to go to high-quality postsecondary programs, not scammy ones.
There are policies available to help American workers invest in the right kinds of human capital. Unfortunately, they are virtually the opposite of everything that Republicans are pushing.
Take the House tax proposal. It contains a slew of provisions that would make going to college more expensive. It would end student loan interest deductions, for example. It would also require grad students to pay taxes on waived tuition, which would likely devastate the finances of thousands of STEM students living on meager stipends.
And budgets aside, the Trump administration is also making it easier for Americans to get hoodwinked into enrolling at educational institutions that sell inferior or even fraudulent products. The Education Department has done this by delaying or repealing regulations designed to promote quality and transparency in higher education, such as the gainful employment rule.
Republicans have shown a lot of love for business investment. Time to show a little more love for investment in the skills that are necessary to work, and grow the economy, in the 21st century.
