TAX POLICY
SPECIAL SECTION: THE PLAN THAT WASN'T:
The Dole Plan and Human Capital

By Gary S. Becker

Nobel Prize-winner and Hoover fellow Gary S. Becker had never set foot in the Capitol building before getting an invitation from Senator Dole. But Becker believed that the country needed new economic initiatives, so off to Washington he went. Here he describes how the Dole plan would have fostered the formation of human capital.

I was surprised when I received a phone call in early May to attend a meeting in Washington with then Senate majority leader Bob Dole of Kansas, other senators, and a few economists to discuss the formulation of an economic program for the presidential campaign. I had been the consummate Washington outsider. I declined all invitations to testify before Congress and had never even set foot in the Capitol, the building where the meeting was to take place! But I accepted this invitation because I believed that new economic initiatives were much needed to raise the growth rate of America.

From the beginning, Dole wanted major education and training initiatives because he recognized that investments in human capital are essential to robust long-term growth in modern econ-omies that depend on knowledge, skills, and information. Better education and training would also have helped narrow the inequality in earnings that has grown over the past two decades.

VOUCHERS AND SAVINGS

His program advocated scholarships, or vouchers, for students from middle-class and poor families that could be spent at private schools, including parochial schools. Poorer students attend the worst public schools, since they cannot afford either private schools or good suburban schools. Vouchers, choice, and competition among schools sharply distinguished Dole's approach from President Clinton's, since he, along with teachers' unions, strongly opposed school vouchers and choice.

The Dole plan included education savings accounts that would have allowed families to contribute $500 a year to an "education individual retirement account" for each child, which could be spent eventually on college or other post-high school education. It also would have given tax incentives to companies to pay for training and retraining employees-including those who lost their jobs, possibly because of downsizing.

The Dole program planned first to stop and then roll back the rapid growth in regulations under Presidents George Bush and Bill Clinton. The Clinton administration itself estimated that the cost of complying with federal regulations in 1995 absorbed almost 10 percent of gross domestic product, and the cost was continuing to rise. Dole would have required benefit-cost analysis to justify new regulations and would have reevaluated all existing regulations.

THE BURST

I believe the full program could have reached a much higher growth rate for the U.S. economy. The United States and many other countries have enormous reservoirs of skills that are throttled by high taxes, excessive regulations, and failures to properly educate and train much of the workforce. Any country will gain a large burst in economic vitality if it can improve opportunities for men and women to start businesses and encourage much greater investments in human and physical capital.

To me, the Dole plan was a simple implication of elementary economics taught to freshmen: that powerful changes in incentives have powerful effects on behavior.

Gary S. Becker, who won the Nobel Memorial Prize for Economic Science in 1992, is the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and University Professor of Economics and Sociology at the University of Chicago. He is an expert in human capital, economics of the family, and economic analysis of crime, discrimination, and population. His current research focuses on habits and addictions, formation of preferences, human capital, and population growth. He is a featured monthly columnist for Business Week magazine and is one of the initial fellows of the Society of Labor Economists. In addition to being a Nobel laureate, Becker is a recipient of the 2007 Presidential Medal of Freedom.