Today the quantum leaps in economic growth are more often associated with the education level of a country's work force. Germany and Japan lost a much smaller percentage of their trained workers in the war than they did of their buildings and machines. And in a modern economy, human capital is much more important than physical capital. One of the greatest economists of the 20th century, the late Nobel Prize winner Theodore Schultz, of the University of Chicago, recognized the centrality of human capital in modern economies, in part by studying the post-war German and Japanese experiences. Mr. Chairman, we are back to the tax treatment of the family.
Human capital is created by the family.
No other institution is so essential to the raising of children and, hopefully, their development into the well-fed, healthy, educated workers of the future. Given what modern economics has learned about the roots of economic growth, there is no way that the income of working families should be taxed more heavily than the owners of machines and buildings. Still less should tax reform proposals considered by this Congress put even more of the burden on working families than is the case today. Investment in human capital should be treated no better, but also no worse, than investment in physical capital. Just as proper maintenance of machines and buildings is a necessary business expense, and thus is fully recognized as such by the tax code, proper maintenance of human capital should also be part of the tax code.