ProPublica’s article entitled “A Tax Credit Was Meant to Help Marginalized Workers Get Permanent Jobs. Instead, It’s Subsidizing Temp Work” dated August 23, 2022, is based on a number of technical errors and a serious misunderstanding of the policies behind the work opportunity credit (WOTC).
The purpose of WOTC and its predecessor, the targeted jobs credit, is to provide employers with a modest incentive to select for employment individuals who come from certain statutorily defined disadvantaged groups (including families on welfare and food stamps, unemployed and disabled veterans, individuals with disabilities, ex-felons and individuals on long-term unemployment assistance). Absent these incentives, many of these individuals go through their lives without ever being offered employment, whether temporary or otherwise, and never gain the basic job skills needed to continue and advance in the workforce. WOTC was created to assist individuals in these groups to get over the hurdle of finding a job and gaining those basic job skills.
WOTC is a selection credit; it operates to open the door for an individual who otherwise might not be considered for employment to enter the workforce. The effect of WOTC is to move an individual who potentially would not have been given an employment opportunity into the workforce.
WOTC is a very successful tool in helping individuals on the margins move from dependence on public assistance into the workforce, but it is not the sole tool that exists or should exist to help these individuals improve their economic conditions. The modest incentives created by these programs are effective at encouraging employers to offer employment to individuals they otherwise are unlikely to take a chance on. There is evidence that by acquiring the basic skills provided by the WOTC-enabled position many employees hired under WOTC will continue to work and potentially be promoted or use those skills to move into a better job with another employer. A New York State study of WOTC, for example, found that WOTC employees remained on the job for longer periods than individuals not hired under WOTC.
But WOTC does not, and was never intended, to provide professional training or to fully deal with the many additional challenges that people who live on the economic margins have to face. Its purpose is to introduce them to the workforce by giving the employer an incentive to select them for a job the employer would likely otherwise reject them for simply because of their lack of basic job skills. WOTC is complementary to many other programs that are offered by government to also assist these individuals.
The ProPublica article states that: (1) companies can “write off thousands of dollars from their taxes for each worker they hired”; (2) lawmakers intended WOTC to apply to permanent not temporary employment; (3) to receive the minimum tax credit a worker need only work three weeks; (4) the Federal agencies that oversee WOTC collect little data on it; (5) managers at temp agencies are generally unaware that workers are eligible when they make their hiring decisions; and (6) WOTC is simply a reentry program that puts workers in low paying jobs with no future.
The maximum amount of WOTC any employer can receive is 40% of the first $6,000 in wages paid to an eligible employee (a slightly higher credit is available for veterans) and the employer’s wage deduction is reduced by the amount of the credit taken. As a result, the maximum amount of WOTC is in the vicinity of $1200, nowhere near the “thousands of dollars” the author claims employers are able to generate for each worker they hire and who is certified by their state employment agency as WOTC- eligible. As noted, WOTC does not provide an ongoing subsidy to employers; it is a selection credit that provides an employer a modest one-time incentive to select for employment an individual in one of the statutory categories. Other Federal and state programs are available to provide economic support and training to individuals and WOTC is complementary to those programs and often provides the individual with the experience, basic workplace skills, and confidence that allows them to participate in more formalized training programs
There is nothing in the WOTC statute or in its legislative history that would suggest that the credit was meant to be available only to employers offering permanent employment. The legislative intent was to incentivize employers, whether for permanent or temporary work, to move individuals into the workforce so that they could break their dependence on public assistance, gain basic jobs skills, and have the opportunity to advance their careers and their lives. For that reason, Congress did not (and should not) provide limitations based on the type of job that was offered to the WOTC-eligible applicant. Doing so clearly would undermine the intent and effectiveness of the program.
The author cites studies that suggest that employers may not know that the WOTC-eligible individuals they hire are eligible, a theory which if correct would put into question the incentive value of the WOTC.
That theory is not based on fact. First, WOTC is different from its predecessor program, the targeted jobs credit, in that it requires far more specificity as to which group the employee qualifies for, making it far more necessary for the employer to make that specific determination and thus, to know that the person being hired qualifies at the time the person is being hired.
Contrary to what the author suggests, the US Department of Labor and the state jobs agencies, and the IRS, monitor the program closely, ensure compliance with the statutory requirements of the program, and keep copious statistics on the program’s effectiveness on an ongoing basis. Based on those statistics we know that approximately two million individuals who might never have entered the workforce at any level are hired because of the WOTC incentive each year.
We also know that the Federal Government saves close to $17 billion a year in public assistance payments along with $3.5 billion saved by state governments, as a result of incentivizing the hiring of WOTC-eligible individuals. The author focuses on the aggregate amount of credit that employers claim, about $2 billion in a given year, but ignores that savings that surpass this number ten to one.
Had the author understood the purpose, policies, and economics behind WOTC, including how it saves Federal and state funds, and the actual value of the credit, she likely would have reached very different conclusions. WOTC is a highly successful program; it opens the door to private sector employer jobs for individuals who might otherwise never join the workforce, all while saving considerable amounts in public assistance costs.
Of course, not every individual who enters the workforce under WOTC moves on to better jobs or stays in the workforce for an extended time period; no program works 100% of the time. But we know from the evidence that WOTC-eligible employees do stay on that first job for an average of 2.3 years, and many do advance because they can show either their WOTC employer or other employers that they have work experience and basic jobs skills.
WOTC is used by large, medium, and small employers nationwide, and it should make no difference whether the jobs are with a large or a small employer; the issue is getting a job to someone who might otherwise never get one. In this regard, for the vast majority of the two million Americans who are hired under WOTC each year, the program is not just a success, it is a lifeline.