The GOP Tax Plan Would Make It Harder for Workers to Get New Skills

How can workers adapt to a constantly changing labor market and the oncoming threat of automation? One of the suggestions researchers and policymakers have is to go back to school and acquire new skills. As my colleague Derek Thompson wrote recently, “Making it easier for adults to attend college part-time is crucial if, as the White House has claimed, the U.S. economy [actually] suffers from a ‘skills gap.’” But the latest Republican tax plan, which passed in the House, would make it more difficult for many of these workers to tap into precisely the types of education and training they have been told they need.

The House Republican plan, which was unveiled earlier this month, would repeal the Lifetime Learning Credit (LLC), a 20 percent tax credit on tuition expenses at any eligible postsecondary program up to $10,000 for those who make $65,000 or less (or $130,000 or less for married couples filing jointly). Over 4 million tax filers claim the LLC annually, saving them about $2.6 billion a year.

Gutting the LLC wouldn’t completely eradicate tax credits for students. The LLC has a counterpart, the American Opportunity Tax Credit (AOTC), which the tax plan would not scrap. About 10 million people utilize the ATOC, saving them $17.5 billion per year. Only students going to school at least half-time, in their first four years of postsecondary education, whose income is less than $90,000 (or $180,000 for joint filers) are eligible for the credit. While the AOTC’s higher income cap captures more of the population, the credit’s limits on years of postsecondary study mean that it won’t be accessible to many who need longer-term retraining programs. To mitigate some of the damage done by repealing the LLC, the Republican tax bill offers to extend eligibility to a fifth year to serve some of those who would have been served under the LLC, but would offer them only half as much as what they’d get for the first four years.

Some experts say that eradicating the LLC particularly harms workers who have been told that the key to success in the labor market is learning new skills. The LLC, according to Kim Rueben of the nonpartisan Tax Policy Center, is the only real option for workers who have or need more than five years of schooling, or who are enrolled in school less than half-time. And that’s many of the workers whose jobs are at risk.

The House tax plan also would repeal the tax exclusion for employer-provided education assistance, which allows employers to offer up to $5,250 to an employee for educational needs, tax-free. In a letter to the Hartford Courant regarding the potential repeal, the president of Sacred Heart University, John Petillo, and the president of the Connecticut State Colleges and Universities system, Mark Ojakan, wrote that the “tax-excluded benefit is an important tool in any workforce strategy.”

Cutting that tax exclusion and the LLC could make it more expensive for workers to gain new skills or higher degrees. “Workers going back to school part-time or in non-degree programs wouldn’t be eligible for a tax credit and others would have to pay tax on the value of schooling paid for by their employers,” wrote Rueben and her Tax Policy Center colleague Gordon Mermin.

When asked about how the planned education-credit cuts will affect workers, a House Ways and Means Committee spokesperson touted estimates from the right-leaning Tax Foundation, which indicate that nearly 1 million new jobs will be created because of the bill, due to the proposed lowering of the corporate income tax.

If the tax bill passes in its current form, nontraditional workers who were hoping to retrain may face yet another blow. “It all feels like it is all part and parcel of decreasing federal support for individual workers and for having employers invest in workers or human capital,” says Rueben. The U.S. has funded employment and training programs since the 1930s, but that funding has consistently dwindled. Resources for employment and training programs peaked in the 1970s, according to the economists Burt Barnow and Jeffrey Smith, when funding was equivalent to about 0.64 percent of the U.S.’s GDP. In 2015, funding for these programs was equivalent to only 0.03 percent of GDP. The funding pales in comparison to what other nations spend on these programs: In 2015, Germany’s expenditures on training programs were equivalent to 0.22 percent of its GDP, and in France, expenditures were closer to around 0.34 percent of GDP.

The tax plan has yet to pass the Senate, which will start debating after Thanksgiving and vote sometime before the Christmas holiday. Because Republicans have a 52–48 majority in the Senate, if more than two Republican Senators vote no, the bill would be stifled. There’s reason for Republicans to be concerned though: Two Republican senators, Ron Johnson and Susan Collins, have already expressed hesitation about the contents of the bill.