Work Opportunity Tax Credit Coalition

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Making WOTC Effective

Work Opportunity Tax Credit Coalition Fact Sheet

How Can the Work Opportunity Tax Credit Be Made More Effective?

Every independent evaluation of the Work Opportunity Tax Credit and its predecessor, the Targeted Jobs Tax Credit, by the Department of Labor and Government Accountability Office affirms that this tax incentive increases the employment of targeted workers, which is its goal.

Contrasted to direct Federal spending, a targeted tax credit for employers can be a powerful policy instrument to improve labor market efficiency and outcomes in workforce training, mobility, and adjustment to economic change.

There are several ways the Administration can use the Work Opportunity Tax Credit more effectively in the national economy:

  1. Support Long-Term Re-Authorization.
    Short-term labor market interventions do not take sufficient account of business firms’ planning horizons nor of the time required for small businesses to respond to a new initiative. (This was encountered in the HIRE program). A tax-based program like WOTC should be planned and supported for a minimum of five years.
  2. Assure Full Electronic Filing.
    Although DOL and IRS agreed to a design four years ago, today only Colorado and Ohio have a fully electronic filing of employer requests for certification of eligibility of a new hire for WOTC. The reason given by DOL is insufficient funds for necessary IT capability in the states for processing and issuing certifications.
  3. Assure Employers Receive the Promised Benefit.
    A job credit entails a pact whereby the Federal government promises to absorb part of the cost of a job in return for hiring an eligible worker. Tax rules often bar employers from using WOTC credits when economic conditions change, thus when accumulated credits go unused; employers will stop using WOTC. An effective WOTC design must allow for accumulated benefits to be monetized, so the Federal government pays its promised share of job costs. This can be achieved by allowing WOTC credits to be taken against FICA, carried back to earlier years, or redeemed by Treasury for cash.
  4. Require the Treasury Secretary to Promote WOTC.
    To be effective, a tax-based employment and training program like WOTC should be regularly promoted in the media, and the Treasury Secretary should take the lead in engaging DOL and the Small Business Administration in this.
  5. Allow Non-Profit Employers to Participate in WOTC and Take the Credit Against FICA.
    WOTC is due to expire this year just as health care employers are ramping up to serve 47 million newly insured persons. During the health care reform debate, extensive attention was paid to developing necessary health care worker resources, and the WOTC Coalition used BLS data to survey occupational resource needs in each healthcare occupation and support occupation in 2016. We found that of the additional four million new healthcare jobs required by 2016, one million were in occupations requiring no more than high school and a minimum of on-the-job training jobs suitable for WOTC-eligible workers. Adding a million similar jobs we found by surveying support occupations, and another million job openings due to attrition, there could be three million jobs for WOTC workers in healthcare by 2016. About 20% of these jobs are offered by non-profit employers, such as hospitals and clinics, so allowing the credit to be taken by non-profits against FICA would maximize the opportunity for disabled and disadvantaged workers, youth, and veterans in healthcare-related work.
  6. Expand Worker Eligibility for WOTC.
    All Disabled Workers Receiving SSA Disability Payments should be eligible for WOTC. Currently, the only disabled workers eligible for WOTC are those referred by a State Vocational Rehabilitation Agency or an Employment Network under the Ticket-to-Work Act, which takes up only a small percentage of eligible disabled. Yet moving more disabled workers receiving disability payments into jobs has been a longstanding goal off the Federal government. Making all persons receiving cash disability benefits eligible for WOTC would be more responsive to the challenge, especially for the new cohort of disabled youth graduating from high school each year.
    • Increase The Tax Benefit To Employers For Hiring A Disabled Person By Changing The Credit From 40% Of The First $6,000 Of Wages To 40% Of The First $30,000 Of Wages, As Recommended By Senator Tom Harkin, Chairman Of The Senate Health, Education, Welfare, and Pensions Committee. After an exhaustive study by Committee staff on how to improve employment of persons with disabilities, Senator Harkin noted that during its best years WOTC helps 50,000-60,000 disabled persons find jobs while Bureau of Labor Statistics shows six times that many are actively looking for work, and many others would enter the workforce if they saw more disabled people getting jobs; so clearly, the tax benefit for hiring a disabled person is inadequate to overcome many hiring manager's reluctances to choose disabled people for their work team, no matter what the company policy.
    • End Discrimination Against Older Workers By Making All Workers 18 or Older in Households Receiving Food Stamps Eligible For WOTC. Currently, only workers 18-40 in households receiving food stamps are eligible for WOTC, which means all seniors except those on SSI are excluded from eligibility. Many seniors must work to support healthcare costs and a decent standard of living, so it makes sense to reinforce the safety net by extending eligibility to those on food stamps.
    • Disconnected Youth Eligibility Should be Restored. At-risk and disadvantaged youth have long posed a grave social challenge associated with high crime and repeating the cycle of poverty. Parts of many cities and counties have large pockets of idle youth with limited skills, educational, and family poverty scars that are barriers to entering gainful employment that will enable them to advance and become productive, tax-paying, and law-abiding citizens. Their eligibility was enacted in the stimulus bill, then dropped, which was a mistake: these six million youth pose a structural, not a cyclical problem and are a harbinger of crime, dependency, and wasted lives; they should be a permanent target group in WOTC.
    • WOTC For Hurricane Sandy Victims Should Be Enacted Promptly. Tax relief through WOTC and other measures is urgently needed to encourage job creation and assist business recovery in Sandy disaster areas over the next five years. This was done successfully in Manhattan after 9/11 and in New Orleans after Hurricanes Katrina and Rita.
    • Cooperative Education Students Should Be Eligible For WOTC. Under the guidance of school counselors, cooperative education programs combine study and work. To expand the number and diversity of employers and make these programs more valuable, cooperative education students should be eligible for WOTC.
    • Displaced Workers Should Be Eligible for WOTC. Displaced workers are defined by BLS as persons 20 years of age and older who worked for an employer for three years or more and lost or left jobs because their plant or company closed or there was insufficient work for them to do; they are largely experienced workers with roots in their community. Displaced workers are eligible for retraining under the Workforce Investment Act and Trade Adjustment Assistance, but whether they are re-employed or not, and wages at which they are re-employed, depends on the demand for labor by employers and making them WOTC-eligible would improve their job prospects.
  7. Enact a Training Tax Credit That Puts Employers in Charge of Training for the Skills They Need.
    For a long time, the system for identifying skills needed in a labor market has been built on consultation between employers and training providers, such as community colleges. This system leaves neither employers nor trainers responsible for the quantity and quality of skills to match the employer's needs. Employers are attuned to market signals they know when they'll introduce a new production technique, what consumers want in a new model, and what new product mix the market is signaling. We have yet to try significantly funding workforce training by a tax incentive encouraging employers to accept responsibility for training their workforce. This doesn't mean bringing all training in-house - employers would still be able to contract with existing training providers, but would themselves be responsible for the quantity and quality of results. A 1995 Survey of Employer-Provided Training by BLS found that 90 percent or more of private employers in every economic sector conducted formal training, and the percentage of employees participating ranged from 90 percent to 70 percent. However, BLS found that 60 percent of workers with high school education or less received some formal training, compared to 90 percent with a college education. Employers are now widely engaged in training to a significant degree, and no doubt could do more training of less-educated workers in a partnership with the Federal government via a training tax credit. This could prove more efficient than some training programs funded by direct expenditures, and employer-directed training might be more effective for displaced workers as well.

Submitted by: Paul E. Suplizio
President, Work Opportunity Tax Credit Coalition
January 4, 2013