[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
WORK OPPORTUNITY TAX CREDIT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JULY 1, 1999
__________
Serial 106-55
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
65-845 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Oversight
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
WES WATKINS, Oklahoma JIM McDERMOTT, Washington
JERRY WELLER, Illinois JOHN LEWIS, Georgia
KENNY HULSHOF, Missouri RICHARD E. NEAL, Massachusetts
J.D. HAYWORTH, Arizona
SCOTT McINNIS, Colorado
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
----------
Page
Advisories announcing the hearing................................ 2
WITNESSES
U.S. Department of the Treasury, Leonard Burman, Deputy Assistant
Secretary of Tax Analysis...................................... 11
U.S. Department of Labor, John R. Beverly, III, Director, U.S.
Employment Service............................................. 16
------
Bilirakis, Hon. Michael, a Representative in Congress from the
State of Florida............................................... 8
Center for Community Change, Carlos Espinosa..................... 46
Goodwill Industries International, Inc., Hon. Fred Grandy........ 24
Job Opportunities Business Symposium, and Marriott International,
Fred Kramer.................................................... 61
Johnson, Hon. Nancy L., a Representative in Congress from the
State of Connecticut........................................... 33
National Council of Chain Restaurants, and Waffle House Inc.,
Hon. Donald Balfour............................................ 40
National Employment Opportunities Network, and Chambers
Associates Inc., William A. Signer............................. 49
PenOp, Inc., Howard Schechter.................................... 43
Rangel, Hon. Charles B., a Representative in Congress from the
State of New York.............................................. 5
TJX Companies, Mark Jacobson..................................... 18
SUBMISSIONS FOR THE RECORD
Food Marketing Institute, John J. Motley III, letter............. 70
International Mass Retail Association, Arlington, VA statement... 71
THE WORK OPPORTUNITY TAX CREDIT
----------
THURSDAY, JULY 1, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room B-318, Rayburn House Office Building, Hon. Amo Houghton
(Chairman of the Subcommittee) presiding.
[The advisories announcing the hearing follow:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
June 24, 1999
No. OV-9
Houghton Announces Hearing on
the Work Opportunity Tax Credit
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the work opportunity tax credit
(WOTC). The hearing will take place on Thursday, July 1, 1999, in the
main Committee hearing room, 1100 Longworth House Office Building,
beginning at 10:00 a.m.
Oral testimony at this hearing will be from invited witnesses only.
Witnesses will include representatives from the U.S. Department of the
Treasury, U.S. Department of Labor, and spokespersons for organizations
knowledgeable about the operation of the WOTC. However, any individual
or organization not scheduled for an oral appearance may submit a
written statement for consideration by the Committee and for inclusion
in the printed record of the hearing.
BACKGROUND:
The Small Business Job Protection Act of 1996 (P.L. 104-188)
established the work opportunity tax credit, section 51 of the Internal
Revenue Code. The objective of the WOTC is to provide employers an
incentive to hire persons from certain disadvantaged groups. (The WOTC
is a successor to the targeted jobs tax credit which served a similar
function before 1996.) The WOTC is scheduled to expire after June 30,
1999. The WOTC is available on an elective basis for employers who hire
persons from one of eight targeted groups. The credit equals 40 percent
of the first $6,000 of qualified first-year wages for a person who
works more than 400 hours. The credit is 25 percent of the first $6,000
in qualified wages for a person who works 400 hours or less.
The eight targeted groups are: (1) families eligible to receive
benefits under the Temporary Assistance for Needy Families Program, (2)
qualified veterans, (3) qualified ex-felons, (4) high-risk youths, (5)
vocational rehabilitation referrals, (6) qualified summer youth
employees, (7) families receiving food stamps, and (8) persons
receiving certain Supplemental Security Income benefits. The process
for claiming the credit generally requires an appropriate State agency
to certify that the prospective employee meets the eligibility
standards for one of the targeted groups.
The current WOTC is applied as a credit against the employer's
Federal income tax liability. Therefore, a non-profit or charitable
employer, such as a university or hospital, receives no benefit from
the credit because such employers generally are exempt from Federal
income tax. However, non-profit employers may have a payroll tax
liability for the employer's portion of the Social Security tax as do
for-profit firms. The WOTC only applies against the regular income tax.
It does not offset the alternative minimum tax (AMT), to the extent
that the AMT exceeds the regular income tax.
In announcing the hearing, Chairman Houghton stated: ``The work
opportunity tax credit is one more way we're helping millions of
families move from welfare rolls to payrolls. This tax incentive to
encourage work is a key part of our plan to help even more low-income
Americans escape poverty and enjoy the independence of employment and a
career. I'm hopeful that the bipartisan support for this initiative
will continue.''
FOCUS OF THE HEARING:
The hearing will focus on the operation and effectiveness of the
WOTC. The Subcommittee will review the desirability of extending the
existence of the credit and ways in which it might be improved.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Thursday, July
15, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Oversight office, room 1136 Longworth
House Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1
format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
NOTICE--CHANGE IN LOCATION
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
June 30, 1999
No. OV-9-Revised
Change in Location for Subcommittee Hearing on
Thursday, July 1, 1999,
on the Work Opportunity Tax Credit
Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the work opportunity tax credit scheduled for
Thursday, July 1, 1999, at 10:00 a.m., in the main Committee hearing
room, 1100 Longworth House Office Building, will now be held in room B-
318 of the Rayburn House Office Building.
All other details for the hearing remain the same. (See
Subcommittee press release OV-9, dated June 24, 1999.)
Chairman Houghton. Good morning, ladies and gentlemen. This
is a small room; therefore, I have a small gavel. The hearing
will come to order.
Welcome to the hearing on the Work Opportunity Tax Credit.
We are delighted to have our two distinguished associates here
with us this morning.
Ladies and gentlemen, a person with a meaningful job earns
more than just a paycheck every week. A job helps a person
develop a sense of self esteem, accomplishment, and
independence. These qualities not only help people when they
are at work, but also help them in leading their lives off the
job as well. These qualities also help people at home with
their families.
The sad truth is that a few disadvantaged people have a
difficult time in obtaining the type of job that can help them
develop this sense of self-esteem, accomplishment, and
independence. The difficulty may stem from the employers, who
perceive such people as lacking a good work ethic or costing
more to train. Thus, some people may face a higher hurdle in
finding a meaningful job.
The tax law seeks to address this challenge by providing
employers a tax credit for hiring from eight targeted groups of
disadvantaged people. The groups include welfare families, food
stamp families, high-risk youth, qualified ex-felons, et
cetera. For over 20 years, the tax credit has provided some
type of hiring incentive for employers.
Originally, there was a general jobs tax credit, which was
refined to become the targeted jobs tax credit. Today we have
the Work Opportunity Tax Credit. These credit programs were
marked by the fact that they were not permanent features of the
tax law. Rather, they would expire and need to be extended
periodically. We are at that point again. The Work Opportunity
Tax Credit expired yesterday, on June 30.
So the need to extend this credit periodically may be
annoying, but it also gives us an opportunity to focus on the
details of how it is operating, and to examine proposals on how
to improve it. This is the purpose of today's hearing. The
Subcommittee would like to learn the best way to extend the
Work Opportunity Tax Credit, and how to improve its
effectiveness. I look forward to hearing the testimony of our
witnesses.
Chairman Houghton. When Mr. Coyne comes, I would love to
have him make a statement. In the meantime, what I would like
to do is call on our first witness, Mr. Charles Rangel.
Charlie, great to have you here; it is an honor.
STATEMENT OF HON. CHARLES B. RANGEL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Rangel. Mr. Chairman, it is good to call you ``Mr.
Chairman,'' no matter how brief this tenure will be.
[Laughter.]
Chairman Houghton. I hope you will be brief. [Laughter.]
Mr. Rangel. I probably should. Let me thank you for your
friendship over the years, Mr. Chairman, and your sensitivity
to so many problems outside the scope of our Subcommittee. More
specifically, it has been a great honor and pleasure to work
with you on pieces of legislation that effect the lives of
people.
The legislation that we have before us today, even though
it is a tax credit and deals with accountants and lawyers; it
really deals with the lives of people. At this point I ask
unanimous consent to have my written statement to be made part
of the record.
Chairman Houghton. So approved.
Mr. Rangel. Thank you. I would just like to say that the
best lobbyists for this legislation are the young people that
for whatever reason have impediments that cause them to be
reluctant even to get involved in applying for a job.
We, as Americans, just take for granted the work
experience. We don't know the fears that people have, or the
fact that employers refuse to take the risk. Therefore, we find
a job market out there untouched, and employers out there not
being able to really find those people that, once they break
in, become very, very loyal employees.
The Work Opportunity Tax Credit gives someone an
opportunity to develop skills; to become loyal employees; to
gain promotions, and to go on to higher learning. Once you have
broken the ice and find out that you have the pride of having a
job, the other disadvantages that these particular eight
categories have no longer exist. You are in the market. You are
competitive.
What is important, however, is that employers have
something to rely on. In the legislation that you and I have
co-sponsored, what we do is make it permanent so that we know
from year to year that employers and businesses can depend on
it. We enlarge those things that are taken in account so that
training and health care could become a part. You are a co-
sponsor of those things.
We also would ask you to consider enlarging the groups that
will be eligible for this type of thing, as we find more and
more employees being dislocated because of a lot of progress
that we are making in technology. The most important thing is
for you to take testimony here to see how well this program has
worked; how it has been able to function without bureaucracy,
and the fact that it has brought so many people that had no
idea that they could so easily integrate into a work force.
This program has allowed it to happen.
You have played a very, very important role in creating the
climate for employers to stick with the program,
notwithstanding the fact that it has expired. I hope that you
and I will be successful in making it permanent, so that they
don't have to worry from year-to-year whether the program will
be there for them. I want to thank you for my testimony.
[The prepared statement follows:]
Statement of Hon. Charles B. Rangel, a Representative in Congress from
the State of New York
I am pleased to be here today to testify before the
Subcommittee on Oversight concerning the work opportunity tax
credit (WOTC.) The WOTC continues to be an extremely important
incentive for employers to hire workers from disadvantaged
groups.
Time and time again, I hear from workers in my
Congressional District and throughout the country about how the
WOTC provided them with the opportunity to learn marketable job
skills. These individuals have moved from the first rung of the
employment ladder to positions of experience and success.
Employees hired under the WOTC are proud of what they have
accomplished and the skills they have achieved. These
individuals are providing for their families and, importantly,
serving as role models for others in difficult situations and
trying to enter the workforce.
The key to the WOTC is not the first weeks of employment
but rather the long-term benefits that come from promotions,
job training, and self-confidence in success. While some of the
targeted teenagers would obtain jobs without the WOTC, many
would not. Either way, the WOTC keeps employers focused on the
``targeted'' groups. It is the high-risk youth, the low-income
family, and others that have traditionally had difficulty in
the private sector workforce. The WOTC keeps them in the
forefront of many employers' minds.
The WOTC continues to be a meaningful hiring incentive for
large and mid-sized companies. For example, in fiscal year
1998, more than 285,000 individuals were certified by state
agencies as WOTC-eligible employees. This is more than double
the number of certified individuals in 1997. Why have these
numbers increased so dramatically? Because the WOTC is a proven
and effective worker training program for much of our entry
level workforce. Worker growth, training, and long-term
employment potential are what the targeted employee groups need
and, proudly I must say, the WOTC provides these opportunities.
The continued success of the WOTC depends on a strong
public-private sector partnership. Helping those most in need
to find and retain jobs--and, more importantly, to gain on-the-
job experience and acquire enhanced job skills--benefits our
society as a whole. Without question, the WOTC has the effect
of increasing America's economic growth and productivity.
The WOTC expired on June 30, 1999. I suggest that the
Subcommittee consider favorably H.R. 2101 as you debate
extension of the credit. I am pleased to have cosponsored this
bill with Subcommittee Chairman Houghton (along with many
Members of the Ways and Means Committee on a bi-partisan
basis.)
Extension of the WOTC--ideally on a permanent basis--is
critical to continuing the message we have been sending
employers and future WOTC workers. Hundreds of thousands of
individuals have been certified under the WOTC program to date,
and many more are ready to begin the process this year. We must
pay attention to their needs and give them the chance to get
valuable training, experience, and wages for which they can be
proud.
The legislation I have cosponsored would make the WOTC a
permanent tax credit; expand the wage base eligible for the
WOTC to include employer costs for employee benefits such as
health insurance, educational assistance, and dependent care
assistance for purpose of measuring compensation; merge the
welfare-to-work tax credit into the WOTC with minor
modifications; and, extend the WOTC to tax-exempt charitable
organizations.
Under the bill, eight targeted groups would be eligible for
the WOTC. They are certain/qualified (1) families eligible to
receive benefits under the Temporary Assistance for Needy
Families (``TANF'') Program; (2) families receiving food
stamps; (3) ex-felons; (4) high-risk EZ/EC youths; (5) summer
EZ/EC youth employees; (6) vocational rehabilitation referrals;
(7) veterans; (8) and persons receiving certain Supplemental
Security Income (``SSI'') benefits.
Currently, a significant percentage of WOTC employees are
coming from the families who have been on welfare or receive
food stamps. For example, about \3/4\ of New York's WOTC
participants are from these groups. Workers who have
experienced life on welfare or food stamps are searching out
opportunities to join the workforce in a productive and long-
term way. The WOTC is designed to bring these potential
employees into the private sector job market and give them a
change to succeed. These are fathers, mothers, and kids who
want to learn useful job skills, have untapped abilities, and
again will prove the WOTC is a success.
The Subcommittee's hearing today will serve several very
important purposes. First, the hearing will provide an
opportunity for the Subcommittee to focus on the operation and
effectiveness of the WOTC. The Department of Labor should be
uniquely prepared to discuss why the WOTC has been critical to
providing job and training opportunities to hundreds of
thousands of Americans.
Second, in addition to considering H.R. 2101, the
Subcommittee will be able to discuss other proposals for
expanding and improving the WOTC. For example, legislation
pending before the 106th Congress would add targeted categories
for displaced homemakers, children aging out of foster care,
high-risk youth living in renewal communities, and rural area
residents.
In closing, today's hearing is a good time to hear the
views of the federal government and the private sector about
the benefits of the WOTC, and whether any program reforms are
needed. With this in mind, I welcome representatives from the
Department of the Treasury and the Department of Labor who I
know strongly support the WOTC and will work for permanent (or
at least multi-year) extension of the program. Also, I welcome
representatives from the fast food, discount-retail clothing,
tax-exempt, and low-income/minority communities to participate
in this discussion.
Chairman Houghton. Thanks very much. Charlie, if you want
to stay, fine. If not, that is all right, too.
Mr. Coyne, would you like to make a comment?
Mr. Coyne. Yes. Mr. Chairman, I would just like to welcome
Congressman Rangel, Congressman Bilirakis, and will submit my
statement for the record.
[The opening statement follows:]
Opening Statement of Hon. William J. Coyne, a Representative in
Congress from the State of Pennsylvania
The Work Opportunity Tax Credit (WOTC) technically expired
yesterday and, as a result, needs to be extended. I have joined
Chairman Houghton, as have other Subcommittee Members, as a
strong supporter of H.R. 2101. Enactment of this bipartisan
bill would permanently extend the WOTC and make other
improvements to the program.
The WOTC has provided employers with meaningful incentives
to hire workers from targeted groups. To increase its
effectiveness, the bill would apply the WOTC to costs employers
incur in providing employee accident and health benefits,
educational assistance, and dependent care assistance. Also,
the Welfare-to-Work Tax Credit would be merged into the WOTC.
The WOTC has proven to be an effective worker training
program for much of our hard-to-employ workforce with the
promise of long-term employment opportunities. Beneficiaries of
the new WOTC include certain families receiving food stamps or
temporary assistance, veterans, ex-felons, high-risk youths and
summer youth employees, vocational rehabilitation referrals,
and supplemental security income recipients.
The provisions of H.R. 2101 would expand the WOTC beyond
current law to encourage tax-exempt charitable organizations to
employ workers from the eight targeted groups. Tax-exempt
organizations continue to be an untapped source of employment
and training opportunities for which the WOTC should be
available.
I want to thank Subcommittee Chairman Houghton for holding
this hearing in advance of the full Committee's mark-up of
expiring tax provisions.
Chairman Houghton. Good. Are you going to have any
questions for Charlie? I don't either. [Laughter.]
Thanks very much, Charlie, for agreeing to come.
Now, Mr. Bilirakis, thank you so much for being with us.
STATEMENT OF HON. MICHAEL BILIRAKIS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Bilirakis. Mr. Chairman, it is I who thank you. At the
last moment I requested this appearance. You and your staff
obliged me. I very much appreciate it.
I very much appreciate the work that you, Mr. Coyne, the
Subcommittee, and Mr. Rangel and others are doing on this Work
Opportunity Tax Credit. We have so many tough issues to deal
with up here. Most of them are the things that really make
headlines, and whatnot. But issues such as WOTC are just as
significant, because, as Charles said, it touches the public
out there. I have a 2-page statement that I would ask unanimous
consent be made part of record.
Just very briefly--there is a group that is not covered, a
part of the target group of the Work Opportunity Tax Credit,
and that is the displaced homemakers of our society. A
displaced homemaker can be a man, but ordinarily it is a woman.
It is ordinarily a woman who has not been in the work force
because she has been at home taking care of the children and
doing things that are so very, very important. Then, for
whatever reason--divorce, separation, abandonment, death or
disability of a spouse--all of a sudden has to get out into the
work force; no work background, if you will; no work
experience; in many cases, no education. So how many employers
are going to really take a chance on that type of a person?
You know, we go through life--I know you have experienced
it, too--taking so many things for granted, and are not aware
of this kind of problem. In 1982, when I ran for this office,
during the forums that we go through, I was faced with this,
studied it, and decided to introduce legislation in my first
term. We have been trying ever since. It just seems to be very
natural that they be added to the targeted group. We have
checked with the Joint Committee on Taxation, and have received
a response in writing from them. They agree that this group of
individuals does not really qualify under the WOTC as it now
stands.
There are a lot of details and statistics: They are women,
principally, who make up this group; the cost that Taxation
Committee has applied to it; the definition, and things of that
nature. I know you can pick this up, and maybe already have
picked this up from the documentation that we have submitted.
That is basically our request on behalf a group of people that
is falling through the cracks out there. They have no
unemployment insurance. They have no health insurance. They
really need this help.
[The prepared statement follows:]
Statement of Hon. Michael Bilirakis, a Representative in Congress from
the State of Florida
Mr. Chairman and distinguished Members of the Subcommittee,
I appreciate the opportunity to appear before you this morning
to discuss the Work Opportunity Tax Credit (WOTC) program.
First, let me start out by saying that I support the
reauthorization of this program. Most people want to work if
given the opportunity. It adds to their dignity and self-
esteem. Programs such as the Work Opportunity Tax Credit should
be applauded, encouraged, and continued. The Work Opportunity
Tax Credit (WOTC) is intended to combat and lessen the problem
of structural unemployment among certain ``hard-to-employ''
individuals. The working experience provided to presently
targeted groups gives them the opportunity to participate in
the American economy.
However, Mr. Chairman, there is a group of individuals who
are as needy as those presently covered under the WOTC
program--the displaced homemakers of our society. Displaced
homemakers are primarily women who have been full-time
homemakers for a number of years, but who have lost their
source of economic support due to divorce, separation,
abandonment, or the death or disability of a spouse.
I am not talking about women whose husbands have died and
left them well off, or about women who receive substantial
alimony or child support payments. We're talking about poor
women who have been out of the workforce and cannot find decent
jobs, either because of a lack of job skills or an employer's
unwillingness to hire them because they haven't worked in years
or perhaps have never worked outside the home.
Mr. Chairman, these women are struggling to make ends meet
without unemployment insurance, without health insurance, and
without jobs.
Displaced homemakers are not only elderly women, even
though prime working years are usually considered to be up to
age 64. Displaced homemakers can be in their late 20s, 30s, or
40s. They may have a number of children or they may have none.
However, the basic fact is that they need housing, medical
care, and food to eat, all of which they would pay for if they
had a job.
The statistics on displaced homemakers are shocking. The
Women Work Network here in Washington, which represents local
programs serving displaced homemakers nationwide, indicates
that although economic recovery has improved the lives of many
Americans in the last few years, displaced homemakers continue
to be left behind. Studies reveal that in 1997, there were 17
million displaced homemakers in the United States. This is
virtually unchanged from the 1990 figure of 17.8 million. Of
these 17 million displaced homemakers, 43 percent are age 64 or
younger and 57 percent are age 65 or older. In my own state of
Florida, there were over half a million displaced homemakers
over the age of 65 in 1997--an 11.4 percent increase since
1992.
Sadly, the studies also indicate that in 1997, 3.3 million
displaced homemakers lived below the poverty threshold. In
fact, approximately 83 percent of displaced homemakers earned
less than $20,000 in 1997. Of that 83 percent, 59 percent
earned less than $10,000.
Mr. Chairman, any woman who has succeeded in running a
home, budgeting, and possibly caring for children certainly has
skills that will fit very nicely into a working environment
outside of the home. Displaced homemakers should be given a
chance to work. That is why I believe that displaced homemakers
should be included among the groups served by the WOTC program.
As you may know, for over ten years I have sponsored
legislation to assist displaced homemakers by extending the
WOTC program to provide a tax credit to employers who hire and
train these individuals. I have reintroduced this legislation
in the 106th Congress.
My bill, H.R. 81, would give employers a tax credit for
hiring displaced homemakers by establishing them as a targeted
group under the Work Opportunity Tax Credit (WOTC) program.
I see this approach as cost-effective. By providing
prospective employers with the incentive to hire displaced
homemakers, we avoid the much more costly alternative of
publicly supporting these homemakers and their families.
In addition, Mr. Chairman, we enable these homemakers to
maintain the pride and self-esteem that comes with holding a
job and being self-sufficient. The Work Opportunity Tax Credit
program needs to be expanded to create employment opportunities
for our displaced homemakers. This, Mr. Chairman, is nothing
less than an issue of compassion, good fiscal sense, and
progressive thinking.
Mr. Chairman, I hope that the Ways and Means Committee will
move forward on H.R. 81 and expand the WOTC program to include
displaced homemakers as a targeted group. We have all heard the
old saying, ``If you give a person a fish, you feed him for a
day; if you teach a person to fish, you feed him for a
lifetime.'' I believe that targeting displaced homemakers under
the WOTC program is the equivalent of teaching these women ``to
fish'' and earn a skill that will last them a lifetime.
Thank you, Mr. Chairman, for providing me with this
opportunity to testify on the Work Opportunity Tax Credit and
the need for my legislation.
Chairman Houghton. Well, thank you very much.
Do you have a question? Mike, I have a couple of questions.
First of all, how many people do you think would fall into
this displaced category.
Mr. Bilirakis. Well, the information that we have received
from studies in 1997 is that there were 17 million displaced
homemakers falling within the definition of a displaced
homemaker. This is really a figure that is virtually unchanged
from the 1990 figure of 17.8 million. So approximately, it is
the same over the period of 7 years.
Of these 17 million, 43 percent are aged 64, or younger,
and 57 percent are aged 65, or older. Many of them that live
near the poverty level are younger than 35 and have children.
Those are the people that really need help, even more so, I
think, than someone much older.
Chairman Houghton. The second question, really, is in terms
of the money. Do you have any idea what this will cost?
Mr. Bilirakis. Yes, we do. We do from the standpoint of
what we received from the Joint Committee on Taxation. They
have estimated a first-year cost of $22 million. Over 5 years
it would be $264 million.
Again, we have that old situation that we are faced with
with CBO where they have the statistical figure, and don't take
into consideration the money that would come into the coffer as
a result of these people working, and, of course, the money
that they would not have to use in terms of welfare--if you
will--and all of the other costs. The gross costs are $22
million in the first year and $264 million over 5 years.
Chairman Houghton. OK. Mike, when we were talking, you
mentioned the fact that you wanted to revive this concept. What
happened to it along the way?
Mr. Bilirakis. Well, we just kept hitting our heads against
a stone wall. When it was the Republican administration, they
would testify against it because of the cost. Frankly, we just
sort of got off onto other things. We continued to introduce
the legislation. When found out about this hearing, the red
flag went up. We decided that maybe it is a good opportunity to
reinstate it.
Chairman Houghton. I don't have any other questions. Thank
you very much for coming. I am delighted that we could fit you
in here.
Mr. Bilirakis. Thank you, Mr. Chairman. Again, I appreciate
your consideration.
Chairman Houghton. OK, great. Thank you.
Now, we will have the first panel: Mr. Burman, who is the
Deputy Assistant Secretary for Tax Analysis in the Treasury;
John Beverly, who is the Director of U.S. Employment and
Service, Employment and Training, in the Department of Labor.
If you two gentlemen will come up, I would appreciate it.
Good morning. Glad to have you here.
Mr. Burman, would you like to give your testimony?
STATEMENT OF LEONARD BURMAN, DEPUTY ASSISTANT SECRETARY OF TAX
ANALYSIS, U.S. DEPARTMENT OF TREASURY
Mr. Burman. Yes, thank you. Mr. Chairman and Distinguished
Ranking Member, I am pleased to present the views of the
Treasury Department today on the Work Opportunity Tax Credit.
Mr. Chairman, we appreciate your leadership in enacting
this credit, and your efforts to extend the credit and
strengthen its operation and effectiveness. The Work
Opportunity and Welfare-to-Work tax credits provide an
incentive for employers to hire workers who would otherwise
have a hard time finding work and attaining self-sufficiency,
including those who are trying to make the difficult transition
from welfare to work.
Employers are using these new incentives. The Labor
Department reports that between Fiscal Year 1997 and Fiscal
Year 1998, the number of certifications for Work Opportunity
Tax Credits has more than doubled. The Administration strongly
supports efforts to extend and improve these credits. Our
Fiscal Year 2000 budget would extend, for 1 year, both the Work
Opportunity Tax Credit and the Welfare-to-Work tax credit. We
would generally support a longer-term extension of both
credits, if done in a fiscally responsible way, because it
would allow businesses to make future hiring plans knowing that
the tax incentives would be available. We look forward to
working with the Subcommittee on the simplification of the Work
Opportunity Tax Credit and the Welfare-to-Work tax credit in
the context of a multi-year extension.
The employment of economically disadvantaged and disabled
workers is one of the Administration's most pressing concerns.
The Work Opportunity Tax Credit provides an incentive for
employers to hire individuals who have traditionally had
difficulty obtaining employment and remaining in the work
force. The Welfare-to-Work credit provides targeted employment
incentives that will support the goals of the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996,
and the Welfare-to-Work Program created in the 1997 Balanced
Budget Act, by helping long-term welfare recipients make the
difficult transition to work and succeed in the work force. The
experience encouraged by those credits is intended to promote
job skills.
Both tax credits, as you know, expired yesterday. The
Administration's budget would extend them for 1 year so that
they would apply to employees who began work before July 1,
2000. Extension of both provisions is a very high priority of
the Administration.
It is important to ensure that the provisions work as they
were intended. Under current law, one problem is that the
benefits under the Work Opportunity Tax Credit and the Welfare-
to-Work credit are not properly coordinated with respect to an
individual if his first year of employment does not coincide
with the employer's taxable year. The fiscal year 2000 budget
proposed a technical modification that would rectify this
problem.
We are also taking steps to clarify the operation of the
Work Opportunity Tax Credit and the Welfare-to-Work credit
where an individual in the process of moving from welfare to
work is employed by more than one employer. The typical case is
where a non-profit organization hires a former welfare
recipient to participate in a transition to work training
program to prepare the individual for employment with a for-
profit business. The Treasury and the IRS are about to issue a
notice that will clarify that the for-profit employer who hires
the former welfare recipient from the transition to work
program is eligible for the full Work Opportunity Tax Credit or
Welfare-to-Work credit, if the individual satisfies the
statutory requirements for qualification, even though the
individual is not hired by the for-profit employer directly
from the welfare rolls. We believe that the forthcoming notice
will preserve the important role that non-profit organizations
play as a bridge between welfare and employment by for-profit
businesses.
H.R. 2101 would make the Work Opportunity Tax Credit
permanent, consolidate the Work Opportunity Tax Credit and
Welfare-to-Work credit, and allow the credits to be claimed by
tax-exempt organizations. We share the goals underlying these
proposals, but have concerns about some of the specific
details. Because we are concerned about the efficient use of
Government revenues, and the need to find a revenue offset, we
believe that priority should be given to an extension of the
credits and the Administration's proposed clarification, and
the coordination between the two credits. However, we recognize
the need for a continuing employment incentive, and more
certainty for businesses when making hiring plans. Therefore,
the Administration would support an extension of the credits
that is longer than 1 year, provided that appropriate revenue
offsets could be found.
We also want tax-exempt employers to continue to serve as a
bridge between welfare and productive employment in the for-
profit sector. For example, the forthcoming notice will help by
ensuring that an individual who participates in a transition-
to-work program with a tax-exempt entity will not lose
eligibility under the Work Opportunity Tax Credit or Welfare-
to-Work credit. We recognize and support the vital role that
tax-exempt organizations play in providing employment
opportunities. But we don't believe that tax incentives are the
appropriate subsidy mechanism for those who are tax-exempt, for
several reasons.
H.R. 2101 would allow tax-exempt entities to claim work
opportunity and Welfare-to-Work tax credits against their FICA
tax liability. This would be an unprecedented new role for the
payroll tax system. The payroll tax system must remain devoted
to its vital core mission of financing Social Security and
Medicare.
Moreover, we have serious concerns about allowing an income
tax credit for entities that have been exempted by statute from
income tax. That result would surely seem unfair to an
ordinarily taxable business that cannot use tax credits because
they are unprofitable, and thus have insufficient tax liability
against which to claim the credits. Moreover, administering the
proposal would be difficult because the payroll tax system and
the income tax system are administered separately.
We would be pleased to work with you on simplification of
the two credits. In doing that, we want to ensure that
consolidation of the credits to streamline their operation does
not sacrifice the special features aimed at helping long-term
welfare recipients to successfully re-enter the work force.
In conclusion, Mr. Chairman, the Administration strongly
supports an extension of the Work Opportunity Tax Credit and
the Welfare-to-Work tax credit. We believe these credits
improve job opportunities for economically disadvantaged and
disabled individuals and help the ease the difficult transition
from welfare to work. Although extension of the credits and
technical modifications to improve their coordination is our
highest priority, we would be happy to work with you and other
Members of this Subcommittee on modifications that will
simplify the credits in the context of a fiscally responsible,
multiyear extension.
I would be happy to answer any questions.
[The prepared statement follows:]
Statement of Leonard Burman, Deputy Assistant Secretary of Tax
Analysis, U.S. Department of the Treasury
Mr. Chairman and distinguished Members of the Subcommittee,
I am pleased to present the views of the Treasury Department
today on the work opportunity tax credit. Mr. Chairman, we
appreciate your leadership in enacting this credit and your
efforts to extend the credit and strengthen its operation and
effectiveness. The work opportunity and the welfare-to-work tax
credits provide an incentive for employers to hire workers who
would otherwise have a hard time finding work and attaining
economic self sufficiency, including those who are trying to
make the difficult transition from welfare to work. Employers
are using these new incentives, as the Labor Department will
report. Between FY 1997 and 1998, the number of certifications
for work opportunity tax credits has more than doubled.
The Administration is strongly supportive of efforts to
extend and improve these credits. Our FY 2000 budget would
extend for one year both the work opportunity tax credit and
the welfare-to-work tax credit. We would generally support a
longer-term extension of the work opportunity tax credit and
welfare-to-work tax credit, if done in a fiscally responsible
way, because it would allow businesses to make future hiring
plans knowing that the tax incentives would be available.
We look forward to working with the Subcommittee on the
simplification of the work opportunity tax credit and the
welfare-to-work tax credit in the context of a multi-year
extension.
Background
The work opportunity tax credit was enacted by the Small
Business Job Protection Act of 1996 as a replacement for the
targeted jobs tax credit, which had expired on December 31,
1994. The work opportunity tax credit is intended to provide an
incentive for employers to hire certain economically
disadvantaged and disabled individuals, many of whom lack job
skills. As originally enacted, the work opportunity tax credit
was effective for wages paid or incurred to a qualified
employee who began work for the employer after September 30,
1996 and before October 1, 1997. The credit was subsequently
extended nine months (to July 1, 1998) by the Taxpayer Relief
Act of 1997, and one year (to July 1, 1999) by the Tax and
Trade Relief Extension Act of 1998.
The welfare-to-work tax credit was enacted by the Taxpayer
Relief Act of 1997 in order to help move individuals from
welfare to work. This credit is intended to encourage employers
to hire long-term welfare recipients who may face the greatest
challenges making the transition to employment, and to promote
retention by providing a larger credit for the second year of
employment. It also is intended to encourage employers to offer
benefits, such as educational assistance, health plan coverage
and dependent care that will help these workers succeed on the
job. The originally enacted welfare-to-work tax credit was
effective for wages paid or incurred to a qualified individual
who began work for an employer on or after January 1, 1998, and
before May 1, 1999. The Tax and Trade Relief Extension Act of
1998 extended the credit for two months (to July 1, 1999).
The work opportunity tax credit and the welfare-to-work tax
credit are jointly administered by the Treasury Department
through the Internal Revenue Service (IRS) and the Department
of Labor through its Employment Service. The IRS is responsible
for tax-related aspects of the program and the Employment
Service, through the network of State Employment Security
Agencies, is responsible for documenting worker eligibility.
Current Law
Work Opportunity Tax Credit
The work opportunity tax credit encourages employers to
hire individuals who are members of certain targeted groups.
The credit equals a percentage of qualified wages paid during
the first year of the individual's employment with the
employer. The credit rate depends on the length of employment.
An employer can claim a 25 percent credit for employment of at
least 120 hours but less than 400 hours; the credit rate is 40
percent for employment of 400 or more hours. Up to $6,000 of
wages may qualify for the credit. Thus, the maximum credit is
$2,400 per eligible employee. The credit is scheduled to expire
with respect to employees who begin work after June 30, 1999.
Eligible employees must be a member of one of the following
targeted groups: (1) families receiving assistance under Title
IV-A of the Social Security Act (The Temporary Assistance for
Needy Families Program (TANF)); (2) qualified veterans; (3)
qualified ex-felons; (4) high-risk youth; (5) vocational
rehabilitation referrals; (6) qualified summer youth employees;
(7) certain families receiving food stamps; and (8) qualified
supplemental security income (SSI) recipients. Qualified wages
generally include cash wages paid to an eligible employee.
To claim a credit for an employee, an employer must receive
a written certification that the employee is a member of a
targeted group. State employment security agencies are
generally responsible for providing those certifications. The
employer must have received the certification on or before the
day on which the individual begins work for the employer, or
must have completed a ``pre-screening'' notice with respect to
the employee (containing the information that led the employer
to believe the individual is a member of a targeted group) on
or before the day the individual is offered employment with the
employer and submitted such notice as part of a written request
for certification not later than 21 days after the individual
begins work for the employer.
Welfare-to-Work Tax Credit
The welfare-to-work tax credit enables employers to claim a
tax credit for eligible wages paid to certain long-term family
assistance recipients. The credit is 35 percent of the first
$10,000 of qualified wages in the first year of employment and
50 percent of the first $10,000 of qualified wages in the
second year of employment. Thus, the maximum credit for two
years is $8,500 per eligible employee. The employee must work
for the employer for at least 180 days or 400 hours. The credit
is scheduled to expire with respect to individuals who begin
work after June 30, 1999.
Qualified wages include cash wages paid to the employee
plus amounts paid by the employer for the following: (1)
educational assistance excludable under a section 127 program;
(2) health plan coverage for an employee (subject to certain
limits), and (3) dependent care assistance excludable under
section 129.
Discussion
The employment of economically disadvantaged and disabled
workers is one of the Administration's most pressing concerns.
The work opportunity tax credit provides an incentive for
employers to hire individuals who have traditionally had
difficulty obtaining employment and remaining in the work
force. The welfare-to-work credit provides targeted employment
incentives that will support the goals of the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996
and the Welfare-to-Work program created in the 1997 Balanced
Budget Act by helping long-term welfare recipients make the
transition to work and succeed in the workforce. The work
experience encouraged by those credits is intended to promote
job skills. Extension of both provisions is a high priority of
this Administration.
In the FY 2000 budget, the Administration proposed a one-
year extension of the work opportunity tax credit, so that the
credit would apply with respect to employees who begin work
before July 1, 2000. An extended credit would continue to serve
as an inducement for employers to hire these hard-to-employ
individuals and to help them develop valuable job skills. The
revenue cost of a one-year extension of the work opportunity
tax credit is estimated to be $415 million for FY 2000-2004.
The Administration also proposed a one-year extension of
the welfare-to-work credit, so that the credit would be
effective for individuals who begin work before July 1, 2000.
Extending this credit would continue to encourage employers to
hire long-term welfare recipients, and to invest in training,
health care and dependent care benefits, and to encourage long-
term employment. The revenue cost of a one-year extension of
the welfare-to-work tax credit is estimated to be $87 million
for FY 2000-2004.
It is important to ensure that the provisions work as they
were intended. Under current law, one problem is that the
benefits under the work opportunity tax credit and the welfare-
to-work tax credit are not properly coordinated with respect to
an individual whose first year of employment does not coincide
with the employer's taxable year. To rectify this problem, we
proposed a technical modification in the FY 2000 budget that
would eliminate any unintended effects.
We are also taking steps to clarify the operation of the
work opportunity tax credit and the welfare-to-work tax credit
where an individual, in the process of moving from welfare to
work, is employed by more than one employer. The typical case
is where a nonprofit organization hires a former welfare
recipient to participate in a transition-to-work training
program to prepare the individual for employment with a for-
profit business. Treasury and the IRS are about to issue a
notice that will clarify that the for-profit employer who hires
the former welfare recipient from the transition-to-work
program is eligible for the full work opportunity tax credit or
welfare-to-work tax credit if the individual satisfies the
statutory requirements for qualification, even though the
individual was not hired by the for-profit employer directly
from the welfare rolls. We believe that the forthcoming notice
will preserve the important role that nonprofit organizations
play as a bridge between welfare and employment by for-profit
businesses.
H.R. 2101 would (1) make the work opportunity tax credit
permanent; (2) consolidate the work opportunity credit and the
welfare-to-work credit; and (3) allow the credits to be claimed
by tax-exempt organizations. We share the goals underlying many
of these proposals, but have concerns about some of the
specific proposals.
Because we are concerned about the efficient use of
government revenues and the need to find revenue offsets, we
believe that priority should be given to an extension of the
credits and to the Administration's proposed clarification in
the coordination of the work opportunity tax credit and the
welfare-to-work tax credit. However, we recognize the need for
a continuing employment incentive and more certainty for
businesses when making hiring plans. Therefore, the
Administration would support an extension of these credits that
is longer than one year, provided that appropriate revenue
offsets could be found.
We also want tax-exempt employers to continue to serve as a
bridge between welfare and productive employment in the for-
profit sector. For example, our proposed notice will clarify
that an individual who is participating in a transition-to-work
program with a tax-exempt entity will not lose eligibility
under the work opportunity tax credit and welfare-to-work tax
credit.
We would oppose, however, allowing a tax-exempt entity to
claim these credits against its FICA tax liability. This
unprecedented new role for the payroll tax system would allow
it to be used as a backdoor mechanism for providing income tax
credits. The payroll tax system must remain devoted to its
vital core mission of financing Social Security and Medicare.
Moreover, we object to allowing an income tax credit to
entities that have been exempted by statute from income tax
liability. Such a policy would mean that certain tax-exempt
entities would effectively have a negative tax liability under
the income tax--that is, the income tax system would serve
solely as a means of providing subsidies. That result would
surely seem unfair to ordinarily taxable businesses that cannot
use tax credits because they are unprofitable and thus have
insufficient tax liability against which to claim the credits.
Moreover, administering the proposal would be difficult because
the payroll tax system and the income tax system are
administered separately.
We would be pleased to work with you on simplification of
the work opportunity tax credit and the welfare-to-work tax
credit. In doing that, we would want to ensure that
consolidation of the credits to streamline their operation does
not sacrifice the special features aimed at helping long-term
welfare recipients successfully re-enter the work force.
Conclusion
In conclusion, Mr. Chairman, the Administration strongly
supports an extension of the work opportunity tax credit and
the welfare-to-work tax credit. We believe that these credits
improve job opportunities for economically disadvantaged and
disabled individuals, and help to ease the transition from
welfare to work for long-term welfare recipients. Although
extension of the credits and technical modifications to improve
their coordination is our highest priority, we would be happy
to work with you and other Members of this Subcommittee on
modifications that will simplify the credits in the context of
a fiscally responsible multi-year extension.
This concludes my prepared remarks. I would be pleased to
respond to your questions.
Chairman Houghton. Thank you very much.
Mr. Beverly.
STATEMENT OF JOHN R. BEVERLY, III, DIRECTOR, U.S. EMPLOYMENT
SERVICE, U.S. DEPARTMENT OF LABOR
Mr. Beverly. Thank you, Mr. Chairman. Good morning to you
and the distinguished Members of the Subcommittee. I am pleased
to have the opportunity to testify before you today on the Work
Opportunity Tax Credit and Welfare-to-Work credit. I would like
to summarize the key points of my prepared statement, if I may.
Employment tax credits are an important element of the
Administration's Welfare-to-Work strategy and efforts to assist
the hard-to-employ. Employment tax credits benefit
disadvantaged job seekers by making them more attractive job
candidates. They benefit employers by compensating them for
some of the risk and additional costs associated with employing
persons who may not have extensive job histories, and who may
need some assistance in becoming fully productive once
employed.
Tax credits can be a win-win situation, therefore, for all
concerned, if they operate in a way that is consistent with
policies that guard against abuse. In this regard, both tax
credits seem to address many of the concerns associated with
the targeted jobs tax credit.
As you may know, part of the problem the tax credit was
concerned about is when the determination of eligibility was
made. With the Welfare-to-Work and Work Opportunity Tax Credit,
an employer's judgment about the eligibility of the hire is
made on or before the date of hire. Compared to the TJTC these
tax credit programs have stringent eligibility standards which,
I believe, focus them on the right benefits for job seekers.
Thus, the change from the TJTC to the current employment
tax credits generally appears to be positive. We expect that
our policy framework for these programs continues to provide
the protection against the re-emergence of past problems.
The number of Work Opportunity Tax Credit and Welfare-to-
Work credit certifications has been significant, and provides
an indication of the number of job seekers whose employment may
have been influenced by these tax credits. For the most recent
full year for which data is available, the total number of
Welfare-to-Work and work opportunity certifications issued was
336,000; 290,000 for WOTC and 46,000 for Welfare-to-Work. Two-
hundred-sixteen-thousand WOTC and WTW certifications were
issued during the first half of fiscal year 1999--again,
166,000 for WOTC and 50,000 for WTW.
On an annual basis, if the current certification filings
and the certification rate remains constant, we will approach
certification levels that were similar to those during the
early- to mid-1990's, when between 400,000 and 500,000 targeted
job tax credit certifications were issued each year.
Employers and employees find value in the tax credits. One
large national employer who has used these tax credits, has
used them to develop a jobs-plus training program for
individuals that were hired using these tax credits. They have
made a special effort in this connection to use the program as
a resource in hiring persons with disabilities. Another large
employer hires about 300 individuals per year as a result of
these tax credits, and uses the tax credits to hire individuals
who otherwise would not have been hired. One such individual's
performance was so outstanding, he has been promoted and is
training to become a manager.
The WOTC is benefiting many other individuals seeking to
move from Welfare-to-Work. Of the total certifications issued
in the first half of fiscal year 1999, 55 percent were issued
based on the employee being an eligible TANF recipient.
The second most common target group is food stamp
recipient, who comprise 21 percent of the certifications in the
first half of fiscal year 1999. The Welfare-to-Work credit
complements the Welfare-to-Work Program enacted by the Balanced
Budget Act, which is administered by the Department of Labor.
It provides a targeted incentive to employers to hire, retain,
and invest in long-term recipients, many of whom face great
challenges in getting and holding a job.
Current certification activity reflects a significant work
load, whose administration, we believe, has been improving over
time. Most States currently provide certification decisions
within the timeframes anticipated by our guidelines. States
that do not respond in a reasonable time to certification
requests are in the minority. A major cause of these delays
concerns difficultly in some States in developing and
maintaining mechanisms that are effective in providing job
service agencies with eligibility information in a timely way.
We hope to work with these agencies in making sure that
information moves from those who have eligibility information
to the certifying agency in a timely way. We hope to make
progress in this connection by executing Memoranda of
Understanding with HHS, Agriculture and Treasury to assure that
this information moves in a timely way.
We also want to make sure that greater efforts are made to
mine the information that is available in these agencies that
is relevant to certification. We also want to make broader use
of conditional certification as means of expediting
certification. We also intend to step up our efforts to assure
that small employers participate in the program. We want to
make sure that youth, especially, have an opportunity to
benefit from the credit. As you may know, getting eligible
youth into employment and on the right track to producing
careers is a high priority for Secretary Herman.
Employer participation can translate into jobs for targeted
job seekers. We believe that this participation is, in fact,
influenced by employers' perception of the program's
continuity. When a hiatus in authorization occurs, employer
confidence in the program erodes. Some employers may not
continue to use the program. This may be especially true for
small employers.
The WOTC and WTW tax credits, as you know, expired
yesterday. In the Administration's fiscal year 2000 budget we
have suggested an extension for 1 year. However, in light of
the problems created by these retroactive extensions of
credits, an extension of the credits for a longer period of
time may be desirable.
We are committed to continually improving the certification
process, and plan to conduct a process study to help us examine
where the strengths and weaknesses are, and improve the current
process.
Mr. Chairman, this concludes my summary of my prepared
statement. I would be pleased to answer any questions that you
or Members of the Subcommittee may have.
[The prepared statement follows:]
Statement of John R. Beverly, III, Director, U.S. Employment Service,
U.S. Department of Labor
Good morning, Mr. Chairman and Members of the Subcommittee.
I am pleased to have the opportunity to testify before you on
the Work Opportunity and Welfare-to-Work Tax Credit (WOTC and
WtW) programs.
Employment tax credits are an important element of the
Administration's welfare-to-work strategy and efforts to assist
the hard-to-employ. Employment tax credits benefit
disadvantaged job-seekers by making them more attractive job
candidates, and they benefit employers by compensating them for
some of the risk and additional costs involved in employing
job-seekers who may not have extensive work histories, or who
may require some assistance on the job to become fully
productive. Employment tax credits can be a ``win-win''
situation for all concerned if they operate consistent with
policies that guard against abuses.
The WOTC and the WtW tax credits address many of the
concerns about abuse that were associated with the Targeted
Jobs Tax Credit (TJTC) program. For both the WOTC and the WtW
tax credits, the requirement that the employer submit a pre-
screening notification on or before the date of hire,
indicating that the employer believes an individual is
eligible, appears to appropriately focus employers' efforts to
determine eligibility before the hiring decision is made. Under
TJTC, a significant concern was that the employers would
conduct a post-hire examination of the workforce to determine
eligibility for the credit, thus undermining the effectiveness
of the credit as a hiring incentive. Compared to the TJTC, the
reduction in the number of eligible target groups and tighter
eligibility standards has also focused the WOTC on job-seekers
who are most likely to benefit from an additional job-finding
advantage.
Thus, the change from the TJTC to the current employment
tax credit programs generally appears to be positive. We expect
that our policy framework for these programs continues to
provide protection against a re-emergence of past problems.
The number of WOTC and WtW certifications has been
significant, and provides some indication of the number of job-
seekers whose employment may have been influenced by these tax
credit programs. From October 1, 1997 through September 1998,
the total number of WOTC and WtW certifications issued by the
Department of Labor was 336,000--290,000 and 46,000 for WOTC
and WtW, respectively. This shows considerable growth in the
use of WOTC, compared to WOTC's first year (FY 1997, beginning
October 1, 1996), when about 126,000 WOTC certifications were
issued. The WtW tax credit was implemented January 1998, and
the 46,000 certifications issued represent only 9 months usage.
The total number of employer WOTC and WtW certifications
issued for the first half of Fiscal Year 1999 (through March
1999) was 216,000--166,000 for WOTC and 50,000 for WtW. On an
annual basis, if current certification filings and the
certification rate remain constant, we will approach
certification levels similar to those during the early- to mid-
1990s when between 400,000-500,000 TJTC certifications were
issued each year .
In summary, since these tax credits programs were enacted,
they have been a factor in the employment of more than 600,000
job seekers. We anticipate that the cumulative total
certifications issued will reach 1 million by the end of this
fiscal year.
Employers and employees find value in these tax credits.
For example, one national company has used these tax credits to
develop a ``Jobs Plus'' training program for individuals hired
through the tax credits. The company has hired approximately
1,000 individuals per year for the last three years utilizing
the WOTC tax credit program. It has made a special effort to
use the program as a resource in hiring persons with
disabilities. One such person was hired in the adminstrative
office, received the highest rating possible during his annual
employee review, and was recently promoted.
Another national chain hires approximately 300 individuals
per year as a result of the WOTC & WtW tax credits and
indicates that it uses the tax credit to hire individuals that
it would not otherwise consider for employment. One such
individual's performance was so outstanding that he has been
promoted and is training to become a manager.
The WOTC is benefiting individuals seeking to move from
welfare-to-work. Of the total certifications issued in the
first half of FY 1999, 92,741, or 55 percent, were issued based
on the employee being an eligible TANF recipient. The second
most common target group is Food Stamp recipients, which
comprised 34,473, or 21 percent of FY 1999 certifications.
The Welfare-to-Work tax credit complements the Welfare-to-
Work program enacted in the Balanced Budget Act and
administered by the Department of Labor. It provides a targeted
incentive to employers to hire, retain, and invest in long-term
welfare recipients who may face the greatest challenges in both
getting and keeping a job. It also allows employer-provided
benefits to count towards wages for purposes of the credit, and
provides higher credit amounts than the WOTC, including a
credit for the second year of employment, in recognition of the
special challenges faced by this target group.
The certification data reflect a significant workload whose
administration, we believe, has been improving over time. Most
States currently provide certification decisions within the
time-frames anticipated by our processing guidelines. States
that do not respond in a reasonable time to certification
requests are in the minority.
A major cause of processing delays concerns the difficulty
some States have in developing and maintaining mechanisms that
are effective in providing Job Service agencies with
eligibility information in a timely way. Some information
required to establish eligibility is sensitive, and state
agencies rightfully impose safeguards to protect the security
of this information. Sometimes this can impede the kind of high
volume exchange of information needed to produce timely
certification results.
We hope to make significant progress in correcting this
problem through a Memorandum of Understanding among the
Departments of Health and Human Services, Agriculture and
Treasury that encourages a timely and efficient exchange of
certification information, greater efforts to locate
information that establishes eligibility in connection with a
given information request, and which also encourages broader
use of conditional certifications as a means of expediting
certification. Also, the Employment and Training Administration
will step up its technical assistance to States that are having
certification delays. We hope to apply the experience of other
states and may provide additional funds on a one-time basis, if
required, to resolve specific problems.
We also intend to step up our efforts to increase the
participation of small employers in these tax credit programs.
A significant expansion in the number of job-seekers who
benefit from these programs may depend, in large part, on
increasing small business participation. In this connection we
continue to look for ways to streamline the certification
process without compromising its integrity.
Similarly, we hope to find ways to increase the number of
certifications issued in connection with the employment of
eligible youth. Getting eligible youth into employment and on
the right track to productive careers is a high priority of
Secretary Herman. We believe that the tax credit programs are
underutilized resources in this regard.
We also believe that employer participation is also
influenced by their perception of the program's continuity.
When a hiatus in authorization occurs, employer confidence in
the program erodes, and some employers may not continue to use
the program following reauthorization. This is likely to be
true especially for small employers.
The WOTC and WtW tax credits expired yesterday, June 30. In
its FY 2000 Budget Request, the Administration proposed that
the WOTC and WtW tax credits be extended for one year. However,
in light of the problems created by short-term, retroactive
extensions of the credits, an extension of the credits for a
longer period may be desirable to promote stability and
continuity, provided appropriate revenue offsets could be
found.
The Employment and Training Administration plans to conduct
a process study to examine the strengths and weaknesses of the
current certification process. However, a rigorous program
evaluation sufficient to answer important questions about the
impacts of the program would require a substantial investment
of resources and also poses significant evaluation design
challenges.
Mr. Chairman, this concludes my prepared statement. I would
be pleased to answer any questions that you or other Members of
the Subcommittee may have.
Chairman Houghton. Well, thanks, Mr. Beverly, very much.
We have a vote here. I think we ought to be able to ask the
questions and finish up with this panel. Then, if the rest of
you would not object, we are going to go vote and then come
right back. It should not be more than 10 minutes.
Mr. Coyne, do you have any questions?
Mr. Coyne. Thank you, Mr. Chairman.
Do each of your departments support merging WOTC and WTW
tax credits?
Mr. Burman. We definitely support simplifying the program.
Mr. Coyne. Do you support merging them?
Mr. Burman. We have concerns about that particular
proposal. I think we would like to work with you to see if
there is a way to merge the two credits and still preserve the
special characteristics of the Welfare-to-Work tax credit.
We have two concerns. One is that the credit rate for
Welfare-to-Work would be reduced. We would also like the
Welfare-to-Work credit to be confined to employees who have
long-term jobs, not jobs between 120 hours and 400 hours. One-
hundred-twenty hours is just 3 weeks of full-time employment.
We are also concerned about keeping Welfare-to-Work credit
particularly targeted at long-term welfare recipients.
But we like the idea of combining these together and making
it simpler for employers.
Mr. Beverly. I share Mr. Burman's view that streamlining
the program is something we want to focus on and achieve. As
you may know, currently the certification process for both
programs is the same. We would like to examine further
streamlining proposals.
Mr. Coyne. Relative to expanding the Work Opportunity Tax
Credit to tax-exempt organizations, if the problem is with
allowing the Work Opportunity Tax Credit as payroll tax offset,
what hiring incentive does Treasury suggest be used for
charities?
Mr. Burman. We recognize that tax-exempt organizations play
a vital role. We would like to support that role. There is,
currently, authority under the TANF Program to provide
assistance to non-profit organizations to assist in Welfare-to-
Work transitions. There are other examples of direct-spending
programs that provide assistance. The Work-Study Program
provides hiring incentives for college students. They could be
hired by Government agencies, non-profits, and so on. The real
concern we have is about using the tax system as a way of
subsidizing tax-exempt entities.
Mr. Coyne. A number of employers have indicated that while
the program is working well in most States, there are
significant processing backlogs in about 8 to 10 States. What
are those problems?
Mr. Beverly. Perhaps I can answer that question, since the
Department of Labor is responsible for the certification
process. As I have indicated, those problems, by and large,
stem from the need to get information that is relevant to
eligibility from those agencies that have them, such as welfare
offices in the HHS network, and offices that are issuing food
stamps, to the employment service that is certifying agency for
both tax credits. That movement of information, sometimes, has
been slow. States have been trying to work out arrangements for
computerized exchange of information. Sometimes while those
arrangements are being worked out, backlogs develop. It does
seem to be the information flow issue that is responsible, by
and large, for the problems that we have in those States you
referred to.
Mr. Coyne. Would you support the idea of allowing employers
to pursue eligibility information independently from State job
services if the job services have failed to make an eligibility
determination after a reasonable period of time?
Mr. Beverly. Currently employers--at least some employers--
do cooperate with the job service in getting together
information that is relevant to certification. We certainly
support that cooperation and hope it continues and grows.
However, we would like to see that support of the job service
develop in such a way that we ensure that the job service's
responsibility to be accountable for certification decisions is
maintained.
Mr. Coyne. Thank you.
Chairman Houghton. OK, good. Mr. Hulshof.
Mr. Hulshof. Very quickly, Mr. Burman, in your written
testimony you say the Administration would support an extension
of the credits for longer than a year. But I take it that you
would not agree with a permanent extension, is that true?
Mr. Burman. The concern we have about permanent extension
right now is that the program is relatively new. It might be
premature to make a permanent commitment. We think a longer-
term extension is a good idea.
Mr. Hulshof. Following up on Mr. Coyne's questions, I
recognize the policy perspective regarding allowing tax-exempt
entities to claim credits. As you have indicated on page 4 of
your testimony, the Administration believes this would be a
back-door mechanism providing income tax credits. Is that
right?
Mr. Burman. Yes.
Mr. Hulshof. But the question Mr. Coyne asked you was, does
the Administration have any ideas or new incentives? I think
what I heard from your answer was there is sufficient
incentives that are already in law with TANF. Is that the
position of the Administration: no new incentives are needed
for the tax-exempts?
Mr. Burman. I am focusing on the tax policy issues. We
would be willing to talk to the committee about other
alternatives. But our view from a tax policy perspective is
that they should be along the lines of the TANF Block Grant
Program, which already exists--a direct program to target the
special needs of tax-exempt entities.
Mr. Hulshof. So the Administration would respond to
whatever suggestions that the committee would have, but the
Administration does not have any suggestions at this time. Is
that a fair assessment of the statement you just made?
Mr. Burman. That is my view. It is possible there are
programs in other agencies I don't know about.
Mr. Hulshof. Fair enough. Thank you, sir.
Chairman Houghton. Do have a question? OK, go ahead.
Mr. Weller. Thank you, Mr. Chairman. I realize we are a
little short on time.
I am proud to say Illinois is one of the States where the
program is working well. The information that I have is that
while it is working well in a number of States, several States
have significant processing of backlogs. What do you see as the
problems? Have we identified the problems as to why there are
these processing backlogs?
Mr. Beverly. Again, we believe these processing backlogs
are attributable to the need to find more efficient ways to
exchange information between those agencies that have that
information relevant to certification and the job service.
As you may know, some States, including Illinois, I
believe, have used computer processing as a mechanism to do
that. We hope to reinforce those efforts through appropriate
Memoranda of Understanding with the Department of Health and
Human Services, Agriculture and Treasury to reinforce the
message that it is very important.
Chairman Houghton. I need to cut this thing off. Why don't
we come back and finish this? Is that all right?
The Committee will be in recess. We only have about 3\1/2\
minutes to vote. We will be right back.
[Recess.]
Chairman Houghton. OK, can we begin? Thanks very much.
Mr. Weller.
Mr. Weller. Thanks, Mr. Chairman. Mr. Beverly, you were
responding to my question regarding the processing of backlogs
that appear to exist in 8 to 10 States. You were sharing with
us what you saw as the specific problems that are causing those
backlogs.
Mr. Beverly. Yes. Again, we believe the primary cause is
the need to be more efficient in moving information from those
agencies that have information that is critical to the
eligibility determination process to the job service that is,
in fact, the certifying agency.
The use of computer technology has, in a number States,
shown a significant efficiency impact. As you know, Illinois is
one of the States that has moved in that direction and seen the
benefits of using that technology. We hope to reinforce and
underscore the importance of information sharing through
continuing our work to execute Memoranda of Understanding
between the agencies involved here in Washington, sending the
message out to State systems that the importance of this
information exchange is very much on our minds, and can, in
fact, significantly improve the timeliness of certification
decisions.
Mr. Weller. What else needs to be done to fix the problem
besides the memoranda?
Mr. Beverly. Again, I think we need to be out there working
with the States, providing technical assistance, letting them
know about the experience in States that have solved the
problem, and how States have done that. I think we can be
instrumental in transporting to States that are working on the
problem solutions that have been found in other States.
Mr. Weller. Which States do you see as really demonstrating
the ability to very efficiently process it? What do you feel
are the leading States?
Mr. Beverly. I am impressed by Illinois. [Laughter.]
Mr. Weller. That will be struck from the record.
Mr. Beverly. And New York, as well. I think North Carolina,
in fact, has been able to use technology in such a way, and has
worked out working relationships with welfare agencies, food
stamp agencies, and other agencies that has proven to be a good
approach to all of this. We hope to be able to enlist their aid
in our technical assistance effort, and, again, bring this
learning to other places.
Mr. Weller. I will certainly pass on your compliment to
Linda Renee Backer, the director of the program in Illinois.
Mr. Burman, your conversation with Mr. Hulshof earlier
touched on this. In the Administration's budget this year, you
only propose a 1-year extension of the Work Opportunity Tax
Credit and Welfare-to-Work. What do you believe is the minimum
to make the program more attractive for employers to
participate in this program? What do you feel is the minimum
extension necessary to attract more participation?
Mr. Burman. We think the 1-year extension is very
important. As I said, a longer extension would be worthwhile in
a paid-for package. I cannot really say if 3 years is the right
answer, or 4 years. Basically we support the idea of providing
more certainty for employers, not having them worry each year
as the program expires.
Mr. Weller. You know, Mr. Chairman, as we look in 2 weeks
moving the tax revision for the third Balanced Budget in 30
years, my hope is that we have a multi-year extension of the
Work Opportunity Tax Credit. One of the successes of the low-
income housing tax credit is its permanency. It has been
successful.
I know in previous hearings when we discuss the difference
between permanency in low-income housing tax credit and making
it temporary, from 1993 to this point interest by the private
sector has gone up sevenfold as a result of that. It is that
permanency that attracts more people to participate and invest
for the long term. I certainly hope that we are able as a
fairness issue--fairness to the employer where they can have
the confidence to participate--that we can extend the Work
Opportunity Tax Credit for a number of years, at a minimum,
rather than just 1 year at a time. Thank you, Mr. Chairman.
Chairman Houghton. Well, thanks very much. You know it is
not want you want. The question is: Is there any money there?
That has been the holdup. Obviously, for planning purposes, you
ought to have more than a 1-year throw-off here. We hope
somehow, as the surpluses come along, we can get our budget in
balance and be able to do that. Thanks very much.
I just have one quick question for you, Mr. Burman. I think
that the Treasury is hung up on non-profits because the concept
is that you offset an employer's income tax liability, rather
than tax liability. I think our feeling, in terms of generating
this bill, was that it is the overall tax implication, rather
than an income tax implication--meaning, really, a payroll tax.
You can say this hasn't been done. It is probably difficult to
enact. You know, that is the status quo. You never get anything
done if you don't take some chances. What is the matter with
that approach?
Mr. Burman. I believe that it is inappropriate to try to
target tax incentives to entities that are completely out of
the income tax system. They are tax exempt, which is already as
far as we can go in the income tax system.
Chairman Houghton. No argument there. Income taxes are out.
They don't pay them, but they do pay a tax--some of them,
anyway.
Mr. Burman. I think we are just concerned that this would
be a very dangerous precedent. It would be difficult to
administer, because the payroll tax system and the income tax
system are separate from each other. It would require transfers
from the general fund to the Social Security and Medicare Trust
Funds to make up the money that was diverted from the payroll
tax system. I think there is a concern about fraud, as well. It
would be hard for the IRS to monitor.
We would certainly be willing to look at any proposal that
you, or other members, of this Committee put together, and to
work with you to think about ways to help the tax-exempts.
Chairman Houghton. I would just hope that we wouldn't draw
a line in the sand--you take one position; we take another. We
are going to go ahead with this thing. We would love to talk to
you. We would love to do anything, but we feel very strongly
about it. If there are any specific questions on this thing
that we could talk about, other than the basic concept, I would
love to.
Mr. Burman. We will be happy to work with you and your
staff.
Chairman Houghton. Good. Thanks very much. Thank you very
much, gentlemen, for being here.
Now I would like to call the next witness. The next witness
is Mr. Fred Grandy. Great to have you back, Fred. Fred, as
everyone knows, is president and chief executive officer of
Goodwill Industries International, a former Member of Congress,
a former Member of the Ways and Means Committee. Are you a
Member of the ``Former Club''?
STATEMENT OF HON. FRED GRANDY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, GOODWILL INDUSTRIES INTERNATIONAL, INC., BETHESDA,
MARYLAND, AND FORMER MEMBER OF CONGRESS
Mr. Grandy. I think I just joined the ``Former Club,'' Mr.
Chairman. I get so many invitations; I don't keep track of all
of them.
Chairman Houghton. Wonderful to have you here, Fred. Thanks
very much. Would love to hear your testimony.
Mr. Grandy. Thank you, Mr. Chairman, and Members of the
Subcommittee. I am delighted, on behalf of Goodwill Industries
International, to provide testimony in support of H.R. 2101,
legislation to extend and improve the Work Opportunity Tax
Credit.
I would point out at the outset that we are pleased that
you have 24 Members of the full Ways and Means Committee
already supporting this bill upon introduction, and want to
highlight that we think it is critical it is enacted this year,
and with the extension provided for in the legislation.
I would like to submit my written testimony for the record
in its entirety and I will try to summarize it for the
Committee.
I would like to begin, Mr. Chairman, by talking a little
about what Goodwill Industries International is, as opposed to
what a lot of people think it is. We are, essentially, a
network of 175 community-based organizations situated across
the United States. All of them are tax-exempt under section
501(c)(3) of the Internal Revenue Code. They are designed and
chartered with the charitable mission of providing a broad
variety of employment and job training services to individuals
who are vocationally disadvantaged. These days, that spans the
spectrum all the way from people with specific physical and
cognitive disabilities, traumatic brain injury and various
kinds of vision impairments, through and including single moms
coming off welfare, non-custodial fathers, and everybody in
between.
Because we are a community-based network all Goodwills,
although they are connected through the charitable mission and
the commitment to break down barriers to employment, deliver
these services in unique and innovative ways designed to serve
their communities. I would tell Mr. Coyne, if he were here,
that the Pittsburgh Goodwill, in addition to providing the
normal vocational rehabilitation services, has moved
aggressively into Welfare-to-Work, and is using some of the
dollars generated by our retail stores to invest in things like
transportation for single moms who find that if they get a job
and can't get to it, there is no distinction in finding
employment.
To Mr. Lewis from Atlanta, if he were here, I would point
out that one of our good partners in the central business
district of Atlanta is Marriott Corporation, which will testify
later today on behalf of the credit. In Atlanta alone, they
have provided--I think--60 individuals, with some form of
physical or cognitive disability, an opportunity to work in the
Marriott Marquee, downtown.
Again, we have opportunities in Oklahoma City, Seattle--all
of them tailored to serve various needs of those communities.
Altogether, Goodwill last year served 320,000 individuals with
some form of barrier to employment. What this basically breaks
down to is about 75,000 people coming through our various doors
looking specifically for job placement services. Of that
number, 58,000 were placed in competitive employment. What that
means in this field, Mr. Chairman, is that they found a job in
their community and kept it. In terms of what that return of
charitable investment means to the country and to the
communities that they serve, it is roughly about $641 million
in salary and wages, or $96 million in Federal, State, and
local tax revenues. The point being, of course, that many of
these folks were tax consumers and not tax payers before they
found vocational opportunities through our organization.
So the nature of our operation in all of the communities we
serve through the sale of donated goods, coupled with various
contracts and services we provide, make us an employer of first
resort, employing people who have little or no job experience,
usually in our retail and contract service operations, and,
importantly, giving them the skills necessary to obtain work
and to advance in a very competitive labor market. Mr.
Chairman, I want to stress that this is always paid training.
We now find that we can also be the employer of last
resort, too, for individuals who have been unable to succeed in
the competitive labor market, and who need a more structured
work environment or longer term vocational related services.
Again, as we dig down deeper into the ranks of hard-core
unemployed with the Welfare-to-Work legislation that was
enacted in 1995, States like California are finding themselves
now servicing, through organizations like Goodwill, people who
were formerly deemed unemployable by the Gain Program in
California. This was their Welfare-to-Work program before they
incorporated their new strategy into the Federal program.
So because we deal with individuals with several severe and
multiple barriers, job placement specialists within Goodwill
Industries regularly report that the utilization of the Work
Opportunity Tax Credit can frequently mean a difference between
a person finding a job, or simply remaining dependent on
Government support payments.
There are two very critically important changes in this
reauthorization of the WOTC that I would like to highlight. The
first, of course, is to permanently extend the credit.
Originally known as the target jobs tax credit, and now, the
WOTC, Congress has traditionally reauthorized this employment
incentive for 1 year, or 18-month periods, often allowing the
credit to expire, and then retroactively extending it. This
created an on-again, off-again approach that is considerably
confusing to employers, personnel in State employment service
offices who administer the program, and to placement
specialists in organizations, such as Goodwill, who strive to
match employers with individuals. That is essentially our core
business, Mr. Chairman: matching employers and potential
employees.
As of about 11 hours ago, the WOTC is again in limbo,
because Congress now has the responsibility of reauthorizing
this program, hopefully with a longer stay. We strongly
advocate this committee to add stability to the program.
Today's robust economy has produced labor shortages in many
markets around the country, forcing employers to look for
workers who previously have been deemed unsuitable for work.
While the WOTC itself does not make an unsuitable individual
work-ready, its use, combined with public and private resources
for preemployment training, can often make the difference. With
that modest financial incentive provided through the tax code,
basically a partial offset can be used for higher initial
employment costs, and usually these days post-employment job
training costs associated with the WOTC-eligible populations. I
will cite an example of that later in my testimony.
Let me talk, if I could for a moment, Mr. Chairman, about
some of the criticism that have been leveled against the Work
Opportunity Tax Credit, and formerly the targeted jobs tax
credit, as being a form of ``corporate welfare.'' Goodwill, and
our colleagues in the non-profit community believe that is a
mistaken characterization, because it does not necessarily
reward businesses for people they would hire anyway. That is
not happening. It is important to remember that employers are
now competing for what we call in the workforce development
strategy, ``second-and third-tier levels of unemployed.'' We
are way past the work-first and rapidly-attached individuals
that have profited from a buoyant economy, and now have been
employed under the new welfare legislation.
We are now dealing with a new a population and need new
strategies to deal with that population. Countless studies and
reports in the press point to the dramatic success of the
Nation's welfare rolls with local economies at or near full
employment. Let us get beneath those statistics and look at
some of the things that face us as we look forward to
reauthorizing the WOTC.
For example, at the end of 1998, we still have 2.8 million
families, most of them single-parent, receiving welfare
benefits. These are, again, the hardest of the hard-to-serve,
in many cases with more than one barrier to employment:
poverty, learning disabilities, substance abuse problems. We
have more than 3.6 million individuals, between the ages of 18
and 64, on supplemental security income--another qualifying
category under the WOTC. Many of these individuals have had no
work experience. They are starting from absolute ground zero.
They are a core constituency of Goodwill and its employment and
training colleagues.
And among individuals with disabilities of working age, 18
to 64, 71 percent are still unemployed. This is 10 years after
the enactment of the Americans with Disabilities Act (ADA).
Last year the Harris study put out a definitive study on this.
It said that regardless of whatever statutory changes that have
happened in employment law, the relationship between the
employer and employee for people with disabilities--most of
whom want to work--still is keeping people out of the
workplace.
I can add a little bit more color to that. I serve on the
President's Committee on Employment for People With
Disabilities, which is the small Federal Agency that oversees
the ADA. We have recently run some projected statistics. We
have about 54 million people with disabilities in this country.
If just one million more of them were employed--less than two
percent of that population--we project that would mean an
increase of about $21 billion in annual earned income. So we
are losing productivity by not putting people with disabilities
to work. That is a population that is and could be greater
served by the WOTC.
A permanent extension of the Work Opportunity Tax Credit
will provide employers with a strong, consistent signal that
the Federal Government supports their efforts to assist all
citizens. Again, Mr. Chairman, I would like to cite one of the
things that we are currently doing right now to help employers
hire and retain individuals who are now having a harder time
staying connected to the workplace.
In Omaha, the Goodwill has begun a program with First
National Bank of Omaha, the largest financial institution in
the city, called ``Banking on Success.'' The Goodwill
employment specialist there, among other things, helps
participants with career planning, provides intensive
assistance with logistical issues, such as back-up
transportation, child-care planning, personal budgeting,
financial planning, and money management. Most importantly,
employment specialists will pool and coordinate community
resources for more pressing issues, such as the need for
counseling, housing, and education. This is a full-service
business now, helping people back into the workplace and
helping them stay there. The WOTC is an important tool.
With that in mind, Goodwill and the agencies from the non-
profit community that are endorsing the extension of H.R. 2101
are very much in support of the proposal first offered in the
105th Congress by Representatives Nancy Johnson and Nita Lowey.
It would permit charitable organizations exempt from income
tax, under section 501(c)(3) of the Internal Revenue Code, to
receive a credit against payroll taxes when they hire WOTC-
eligible individuals. In a letter that Mrs. Johnson and Ms.
Lowey sent to the House last year, they pointed out, ``By not
including non-profits, such as hospitals and community-based
organizations, the current WOTC excludes some of the largest
employers in our Nation's inner cities--areas where most of
those eligible for WOTC reside.''
That is truer today than it was last year. Inner-city
hospitals, nursing homes, and large employment organizations
like Goodwill are having the same problems attracting qualified
labor, for our own business opportunities--as do many of the
employers whom we serve. This provision would also allow
entities such as colleges, universities, nursing homes,
museums, and organizations that could hire significant numbers
of entry-level workers to employ individuals from the WOTC-
eligible populations.
Let me go to something that I know Mr. Hulshof and Mr.
Coyne addressed, when they were talking to the representative
from Treasury, as to whether or not the payroll tax forgiveness
is an inappropriate extension of tax exemption for non-profits.
First of all, let me say that non-profits--as you pointed out--
do pay payroll taxes. Anything that is unrelated to charitable
mission, we obviously pay unrelated business income tax. What
we are asking for here is an opportunity to basically provide
more training opportunities within our organizations to provide
employers looking to perhaps enfranchise people with
disabilities, or ex-felons, or any of the targeted categories
under WOTC more opportunities to take these people and keep
them in work.
But let us remember there is a significant difference
between a for-profit and a non-profit, much of it having to do
with our willingness, and in some cases mission-driven
commitment, to tolerate inefficiencies in our workplace in the
non-profit world. This is something that no for-profit business
could afford to do, or should do.
In a very tight labor market, such as we see and such as we
predict will extend well into the next century, we are having
the same problems finding and keeping people, and providing
those post-employment training needs that I talked about
earlier. That is why we strongly think that this is the right
time and the right place to create what was called last year
the ``Community Employment Partnership Act,'' but is now
incorporated into the WOTC as an important opportunity for non-
profits to hire, train, and in some cases, retain workers,
particularly those with disabilities.
Under H.R. 2101, the 7.65 percent employer-paid Social
Security and Medicare tax on wages paid to WOTC-eligible works
would be offset, up to a maximum of $2,400 in the first year of
employment. Those revenues could be used, for example, to
provide the additional skills training to WOTC workers, or
support an organization's charitable mission. It is also
important to point out that this proposal would have no
negative impact on the Social Security or Medicare trust funds.
The amount of the tax-exempt employer's credit would be treated
as payment toward the organization's payroll tax liability,
with general revenues appropriated for payments to the trust
funds.
Similarly, the WOTC employee's Social Security earnings
record would not be negatively affected. Mr. Chairman, an
analysis provided last year by the Joint Committee on Taxation
costed out what was the Johnson-Lowey proposal at $119 million
over 5 years, $29 million in the first year. It is our
understanding that your version has slightly increased that,
but not substantially. That seems a fairly small price to pay
for the opportunity to put more people who are, despite a
buoyant economy, locked in an unemployment situation that is
ongoing.
A study published earlier this month by the National Center
for the Study of Adult Learning and Literacy at Harvard
University concluded that because welfare recipients remaining
on the rolls have such low basic job skills, a vast majority of
available jobs are not open to them. Similarly last year,
McKinzie and Company published a report called, ``Help
Wanted,'' that basically said that customer skills are the
ability to make people feel welcome, understand and respond to
requests, and solve problems that deal with service failures
are essential to service companies. Yet, only to 20-30 percent
of applicants appear to have these skills. To a large degree
non-profits, like Goodwill and other employment training based
organizations, basically off-load that responsibility from
employers so that when they do hire our workers, they come
ready to go to work.
It is because of that, Goodwill Industries strongly
supports the extension of the WOTC, and the incorporation of
the Community Employment Partnership Act in it. Mr. Chairman, I
would also point out that with my testimony is a list of the
non-profit organizations, that are in support of H.R. 2101.
They include, but are not limited to, the ARC, Easter Seals,
National Association of Independent Colleges and Universities,
National Industries for the Blind, National Mental Health
Association, United Cerebral Palsy, as well as the National
Assembly of Health and Human Service Organizations. I notice
their executive director, Gordon Raley, is in the room today.
That includes every major human service non-profit in the
United States: American Red Cross, Girl Scouts, Catholic
Charities, and Second Harvest.
So there is uniform support in the non-profit community for
this. We strongly believe the time has come. I thank the Chair.
[The prepared statement follows:]
Statement of Hon. Fred Grandy, President and Chief Executive Officer,
Goodwill Industries International, Inc., Bethesda, Maryland, and former
Member of Congress
Mr. Chairman and Members of the Subcommittee: On behalf of
the Goodwill Industries network, this opportunity to present
testimony in strong support of H.R. 2101, legislation to extend
and improve the Work Opportunity Tax Credit (WOTC), is
appreciated. With 24 bipartisan members of the full House Ways
and Means Committee cosponsoring this bill upon introduction,
the critical need for enactment of this legislation is
underscored.
Goodwill Industries International, Inc. is the corporate
office of a network of 175 autonomous, community-based
organizations operating throughout the United States. Each of
these organizations, tax-exempt under Section 501(c)(3) of the
Internal Revenue Code, provides a broad variety of employment
and job-training services to individuals who are vocationally
disadvantaged. Welfare recipients, individuals with physical
and mental disabilities, dislocated workers, recovering
substance abusers and ex-felons are among the populations
typically served by a local Goodwill Industries.
While Goodwill is perhaps best known for its more than 1700
retail stores that provide consumers with quality clothing and
household goods at reasonable prices, it is important to
recognize how those revenues are used to support Goodwill
Industries' charitable mission. In 1998, Goodwill Industries
provided vocational services to more than 320,000 individuals,
with nearly 75,000 people coming to Goodwill for assistance in
finding employment. Of that number, 58,000 were placed into the
nation's competitive work force as a direct result of
Goodwill's efforts. We estimate that these newly-employed
individuals earned $641 million in salaries and wages,
generating an estimated $96 million in federal, state and local
tax revenues. In effect, Goodwill Industries turns ``tax
consumers'' into taxpayers. In addition, the nature of
Goodwill's operations allows us to be the employer of ``first
resort,'' employing people who have little or no job experience
in our retail and contract operations, allowing them to gain
the skills necessary to obtain work and advance in the
competitive labor market. Goodwill can also be the employer of
``last resort'' for those individuals who have been unable to
succeed in the competitive labor market and who need a more
structured work environment or longer-term vocational-related
services.
Because we often deal with individuals with severe or
multiple barriers to employment, job placement specialists
within Goodwill Industries regularly report that utilization of
the Work Opportunity Tax Credit often means the difference
between a person finding a job or remaining dependent on
government support payments.
H.R. 2101 calls for two critically important changes to the
WOTC program. The first would permanently extend the credit.
Originally as the Targeted Jobs Tax Credit and now as the Work
Opportunity Tax Credit, Congress has typically authorized this
employment incentive for 1-year or 18-month periods, often
allowing the credit to expire and then retroactively extending
it. This ``on again, off again'' approach has caused
considerable confusion among employers, personnel in state
employment service offices who administer the program and
placement specialists in organizations such as Goodwill
Industries who strive to match employers with individuals in
need of a job. As of approximately 10 hours ago, the WOTC is
again in limbo. Congress has consistently recognized the
importance of the WOTC as evidenced by regular, albeit short-
term, reauthorizations. Now is the time to add stability to the
program. Today's robust economy has produced labor market
shortages in many areas of the country, forcing employers to
look for workers who previously would have been deemed as
unsuitable for work. While the WOTC will not make an
``unsuitable'' individual work ready, its use combined with
public and private resources for pre-employment training can
often make the difference. The modest financial incentive for
employers produced by the Work Opportunity Tax Credit allows
for a partial offset of the higher post-employment job-training
costs associated with WOTC-eligible populations.
Critics of the WOTC mistakenly characterize the credit as
an example of ``corporate welfare,'' rewarding businesses for
hiring workers whom they would employ anyway. It is, however,
important to recognize that employers are now competing for
what we at Goodwill Industries call the second- and third-tier
levels of the unemployed--individuals for whom ``work first''
or ``rapid attachment'' strategies have been unsuccessful
because of the severity of their barriers to work. Countless
studies and reports in the press point to the dramatic success
in the reduction in the nation's welfare roles, with many local
economies at or near ``full'' employment. Despite the strong
economy, all is not well among the WOTC-eligible populations.
For example:
At the end of 1998, there was still an estimated
2.8 million families, mostly single-parent, receiving welfare
benefits.
More than 3.6 million individuals between the ages
of 18-64 are on the Supplemental Security Income (SSI) roles.
Among individuals with disabilities of working age
(18-64), 71 percent are unemployed.
Given the above statistics, there is clearly a need for tax
incentives for employers to hire from WOTC-eligible populations
that experience chronic unemployment. A permanent extension of
the Work Opportunity Tax Credit will provide employers with a
strong, consistent signal that the federal government supports
their efforts to assist all citizens to become productive
members of the nation's work force.
A second, critically important element of H.R. 2101 is a
provision that would substantially increase the effectiveness
of the Work Opportunity Tax Credit by allowing charitable
organizations to participate in the WOTC program. This
proposal, first offered in the 105th Congress by
Representatives Nancy Johnson and Nita Lowey, would permit
charitable organizations exempt from income tax under Section
501(c)(3) of the Internal Revenue Code to receive a credit
against payroll taxes when they hire WOTC-eligible individuals.
In a ``Dear Colleague'' letter to the House last year,
Representatives Johnson and Lowey said:
By not including nonprofits, such as hospitals and community-
based organizations, the current WOTC excludes some of the
largest employers in our Nation's inner cities--areas where
most of those eligible for WOTC reside.
This provision would also encourage nonprofit entities such
as colleges, universities, nursing homes and museums--
organizations that often hire significant numbers of entry-
level workers--to employ individuals from the WOTC-eligible
populations.
Although exempt from taxation on income (except for income
substantially unrelated to an organization's exempt purpose),
charitable entities do in fact pay federal taxes on gross wages
paid to employees. Under H.R. 2101, the 7.65 percent employer-
paid Social Security and Medicare tax on wages paid to WOTC-
eligible workers would be offset, up to a maximum of $2,400 in
the first year of employment. The legislation would also
provide charitable organizations with a second year of payroll
tax offsets when they hire welfare recipients. For a newly-
hired entry-level worker earning the current minimum wage, the
payroll tax offset would come to nearly $800 for each WOTC-
eligible worker. These revenues could be used, for example, to
provide additional skills training to WOTC workers or to
support an organization's charitable mission.
It is very important to recognize that this proposal would
have no negative impact on the Social Security or Medicare
trust funds. The amount of the tax-exempt employer's credit
would be treated as payment towards the organization's payroll
tax liability, with general revenues appropriated for payments
to the trust funds. Similarly, the WOTC employee's Social
Security earnings record would not be affected.
The cost of this proposal is surprisingly modest, an
important factor in this era of fiscal restraint. An analysis
prepared last year by the Joint Committee on Taxation on the
original Johnson-Lowey proposal projected first-year costs of
$29 million, with the provision estimated to cost $119 over
five years. Because of modifications to the original proposal
made in the Houghton-Rangel legislation, we expect that the
first-year cost of H.R. 2101 will be slightly higher. The
legislation would authorize this provision as a demonstration
for three years in order to give Congress an opportunity to
assess its effectiveness in creating employment opportunities
within the targeted populations.
A study published earlier this month by the National Center
for the Study of Adult Learning and Literacy at Harvard
University concluded that because welfare recipients remaining
on the roles have such low basic job skills, the vast majority
of available jobs are not open to them. By expanding the Work
Opportunity Tax Credit to include participation by charitable
organizations, welfare recipients and other WOTC-eligible
individuals will have a greater chance to take that first step
into the nation's workforce. Accordingly, we urge favorable
consideration of H.R. 2101 by the 106th Congress. A list of
additional national organizations also supporting this measure
is attached.
Again, this opportunity to testify on behalf of the
Goodwill Industries network in support of H.R. 2101 is
appreciated. I would be pleased to respond to any questions you
may have.
Organizations Supporting H.R. 2101 (As of June 28, 1999)
In addition to Goodwill Industries International the
following national organization support enactment of H.R. 2101:
American Network of Community Options and Resources
The Arc
Consortiun For Citizens with Disabilities--Employment and
Training Task Force
Easter Seals
Epilepsy Foundation
Inter/National Association of Business, Industry and
Rehabilitation
National Alliance for the Mentally Ill
National Assembly of Health and Human Service Organizations
representing:
Alliance for Children and Families
American Association of Homes and Services for the Aging
American Camping Association
American Cancer Society
American Foundation for the Blind
American Humane Association
American Red Cross
Association for Volunteer Administration
Association of Jewish Family and Children's Agencies
Association of Junior Leagues International Inc.
Big Brothers Big Sisters of America
Boy Scouts of America Inc.
Boys & Girls Clubs of America
Camp Fire Boys and Girls
Campaign for Tobacco-free Kids
Catholic Charities USA
Child Welfare League of America
Citizens' Scholarship Foundation of America
Civil Air Patrol
Coalition for Juvenile Justice
Council on Accreditation of Services for Families and
Children
Families, 4H, and Nutrition
Girl Scouts of the USA
Girls Incorporated
Habitat for Humanity International
Hostelling International--American Youth Hostels
Joint Action in Community Service
Lutheran Services in America
National Benevolent Association
The National Center for Missing and Exploited Children
National Coalition of Hispanic Health and Human Services
Organizations (Cossmho)
The National Council on the Aging
National Crime Prevention Council
National 4-h Council
National Mental Health Association
The National Mentoring Partnership
National Network for Youth
National Urban League
Neighborhood Reinvestment Corporation
The Points of Light Foundation
The Salvation Army
Save the Children
Second Harvest
Sos Children's Villages--USA, Inc.
Street Law, Inc.
Travelers Aid International
United Neighborhood Centers of America
United Seamen's Service
United Way of America
Volunteers of America
Wave Inc.
Women in Community Service (Wics)
YMCA of the USA
Youth Service America
YWCA of the USA
National Association of Independent Colleges and
Universities
National Association of Protection and Advocacy Systems
National Industries for the Blind
National Mental Health Association
National Rehabilitation Association
National Rehabilitation Facilities Association
NISH--National Industries for the Severely Handicapped
Paralyzed Veterans of America
United Cerebral Palsy Associations
Chairman Houghton. Thanks very much, Mr. Grandy.
Well, we are honored to have Mrs. Johnson here, as a Member
of the Ways and Means Committee. Would you like to make a
statement?
Mrs. Johnson of Connecticut. I would. Thank you very much
for giving me this opportunity to testify before one of the
really important Subcommittees of Ways and Means.
Chairman Houghton. You know this.
STATEMENT OF HON. NANCY L. JOHNSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CONNECTICUT
Mrs. Johnson of Connecticut. I just came to make two
points. I consider the Work Opportunity Tax Credit one of the
most important sections of the Tax Code, particularly in this
era, when we--I would have to say Republicans--are leading that
effort to move away from a Government that supports non-work,
to a Government that consciously, explicitly, and forcefully
supports work. The WOTC is powerful in helping people who
otherwise would be hard to employ to get into the work economy.
It gives those very people a boost who most need it: people
with no work records, no experience in coming to work, no
references, and maybe a rather checkered history of one kind or
another.
But I want to speak to two provisions: first of all, your
enlargement of the WOTC to the non-profits; and second, to ask
you to consider a proposal that is coming out of my Human
Resources Subcommittee we are getting costed out at Joint Tax
to include children coming off foster care under the Work
Opportunity Tax Credit.
Kids aging out of foster care have a very, very tough time.
They have often been from home to home. They often have had
mighty little support. They weren't the kids that got into the
work-study programs in high school. They normally don't have
any employer recommendations to follow them. Often they are
coming off rugged paths. We need badly for them to get
established in decent jobs with a career pattern ahead of them.
Those are the very kinds of jobs that the Work Opportunity Tax
Credit can help them get into.
As soon as we get the fiscal note on that we will get that
to you. We expect it to be very small. There is only 20,000
that age out of foster care every year. Many of those will go
on to school or get jobs for which they don't need a credit. So
it is going to be a very, very small cost. It is the principle
of the thing. These are kids that need extra consideration as
they go into the work force.
On this issue of non-profits, you know, most of the people
who need the Work Opportunity Tax Credit live in cities. In my
hometown of 70,000, the biggest employer is the hospital. So,
in the cities, the non-profits play a major role. We need to be
able to encourage them and support them in hiring difficult-to-
hire employees.
Second, the constructive workshops, primarily located in
the urban areas, are the ones with the most experience in
getting people with disabilities into the work force. As we get
more successful in making a Welfare-to-Work program, we are
going to get down to more and more of the women on welfare who
are there because they have mental health problems, or because
they have addiction problems. As they both conquer those
personal problems and move into the workforce, frankly, they
need the knowledge, the experience, the supportiveness of the
kind of environment that Fred is talking about.
During the great downturn of unemployment in Connecticut in
1991, the constructive workshops were loaded with work.
Everyone was afraid to hire anyone because they were afraid the
contracts wouldn't be there in a couple of months. So the
constructive workshops opened their doors to normal employees.
By working side-by-side with normal employees, the
disadvantaged employees increased their productivity
dramatically. It is good for everyone. The constructive
workshops, along with the Salvation Army and all of these
different groups, provide work and psychological, emotional,
and practical advice that people need when they are making big
changes in their lives. I would just urge you to move forward
with your inclusion of non-profits, as you have in your bill,
and to consider foster care kids aging out of the system.
Chairman Houghton. Two good points.
Mr. Grandy. Mr. Chairman, if I could just follow-up on
something Mrs. Johnson said. Of course, what she is talking
about is true in every city in the United States, not just
cities in Connecticut. It is truer now than it was probably a
year ago.
But there was reference made in terms of incentives already
on the table for non-profits in the form of grants, TANF
grants. I want to point out that organizations like Goodwill
and the Y's do compete and win many of these grants. Like any
grant process, it is complicated, time-consuming; the
reimbursement is problematic, and they usually are the province
of only large organizations like ours. Small, community-based
organizations do not get in the game, unless they are able to
stitch together a large partnership. Then they get only a small
piece of the grant. That is why we advocate this change to
extend the payroll tax to non-profits. That allows those
community-based organizations that Mrs. Johnson is talking
about to be on an equal playing field.
Chairman Houghton. OK. You have any more? Thanks very much,
Mrs. Johnson. We really appreciate it.
Mr. Coyne, do you have any questions?
Mr. Coyne. I just want to recognize Mr. Grandy's testimony
and acknowledge the great work that Goodwill Industries is
doing in the district that I represent. The 24-story office
building where my office is manned by Goodwill handicapped
workers who come in every day and do the maintenance work. They
do an outstanding job in carrying that out. Thank you.
Mr. Grandy. Thank you, Mr. Coyne.
Chairman Houghton. Thanks. Ms. Dunn, do you have any?
Ms. Dunn. I just want give a big welcome to Mr. Grandy. It
is great to see you again. Your appearance here on behalf of
the Work Opportunity Tax Credit for non-profits is really just
the last in a series of efforts you have consistently made.
During your time in Congress, I recall your efforts to come out
with a really good family and medical leave bill that would
have answered some problems above and beyond the problems that
were answered by the bill that we finally passed. I
congratulate you on that. I am glad you are back.
Mr. Grandy. Well, I must tell you, Ms. Dunn, it is much
more fun to be on the delivery side of human services than on
the debate side.
I would also point out--Mr. Coyne, I don't think you were
in the room--that Goodwill Industries of Pittsburgh is one of
the signature Goodwills in the country. It serves not only
Allegheny County, but all the way down into rural West
Virginia.
In Seattle, the representative district you are in, Ms.
Dunn, that Goodwill concentrates on adult education and
literacy because the need is so great in that community. So
again, two Goodwills flying the same banner, but offering
customized services because their communities need it.
Chairman Houghton. Any more?
[No response.]
Fred, a question: You know the unemployment rate is very,
very low.
Mr. Grandy. It is 4.2 percent, as of May.
Chairman Houghton. Yes. Does expanding the Work Opportunity
Tax Credit to the non-profits have an impact on for-profit
institutions?
Mr. Grandy. Would it have any kind of negative impact?
Chairman Houghton. Negative impact.
Mr. Grandy. Well, considering the people that we are trying
to get into the workplace, we don't look at that 4 percent
figure. We look at the 71 percent figure of people with
disabilities that are still unemployed. I think, quite
honestly, it would allow us to serve the for-profit community
better. It would allow us more training opportunities through
our stores, the kinds of employment opportunities that
hospitals or large nursing homes would provide--as we all do--
that kind of transitional employment. When people come through
Goodwill, they normally are working in our stores to get job
skills they will need somewhere else in the workplace.
The reason I brought out that number of 58,000 employed
last year is that those are people that came through Goodwill
and got a job somewhere else in their communities. That is our
measure of success.
We do hire a lot of folks, but it is usually with the
understanding that they are using what they learn in a store,
or a community facility of some sort, to get into the workplace
and stay there at a time when the labor market is projected to
be so tight, when customer skills are absent, when the need is
for skills formerly thought of as things only managers would
need. Technological aptitude, problem-solving skills, and good
communication skills are now front-line worker skills, Mr.
Chairman. Those are the kinds of things we teach, day in and
day out.
So if competent labor supply is important to the for-profit
community, I don't see how giving this extension of payroll tax
forgiveness through the WOTC does anything but help those
businesses find the labor they need.
Chairman Houghton. OK. Well, I don't have any questions. Do
you have any more questions? Kenny Hulshof has a question.
Can we recess for just a minute? I am going to go vote. I
will be back. I think he will be back.
Mr. Grandy. I will be glad to stay.
Chairman Houghton. I think also Rob Portman will be back.
If you could just hold on here a moment, Fred. Great. Thanks.
[Recess.]
Mr. Portman [presiding]. We are going to reconvene the
hearing.
Fred, thank you for staying. I know we have some questions
for Mr. Grandy, however, Mrs. Johnson had to go vote.
We will get into some questions, then we will move on to
the next panel and keep the hearing going. I would like to call
on Mr. Hulshof.
Mr. Hulshof. Thank you, Mr. Chairman.
Mr. Grandy, in the written testimony of Mr. Burman
regarding the idea of letting tax-exempts claim credits against
FICA tax liability, he says it is unprecedented. What that
suggests to me is that this would be a new policy direction. Is
that your understanding? Has this ever been allowed before,
where other groups get to take tax credits against FICA tax
liability?
Mr. Grandy. Mr. Hulshof, I do not know of any Federal
precedent where FICA taxes would be forgiven. That is not to
say that they don't exist somewhere at the State level in some
kind of provision that might be incorporated, either
municipally or at a statewide level.
Going back to the question that you addressed, I am not
sure that you heard my response to that. The incentives that do
exist in the Code, which Treasury would have you believe are
plentiful, are really very limited in scope. If we are talking
about grants, as I pointed out to Mr. Houghton, those TANF
grants, which organizations like ours and other non-profits
compete for and in some cases win, are large, cumbersome, and
complicated like most Federal competitive grants. Sometimes
they are based on prohibitive State formulas. But in almost all
cases they are limited to large non-profits, not community-
based organizations that are small and doing the very important
local work of getting people who would otherwise be totally
disconnected from the workplace into meaningful employment.
So I guess I would argue that, yes, it is unprecedented,
but there has probably never been a better time to create that
precedent. We are looking at labor shortages which produce on
paper a full-employment economy, but still keep about 71
percent of the disabled population out of the work force. The
curve to get those folks ready and able to stay in the
workplace takes more time.
The other point that I made--I am not sure you were in the
room--is that organizations like Goodwill, which use their
stores as training facilities, and are like-minded vocational
rehabilitation organizations that use work programs in a
similar way, tolerate inefficiencies that for-profits would not
and should not. We will spend more time with a worker, because
that product is what we produce--not old clothes, not surplus
goods--but workers who are able to get into the workplace and
stay there. Because of that, we would invest more time in that
product that a for-profit business simply could not afford to
do. So that is the incentive for us behind the payroll tax
forgiveness.
Mr. Hulshof. Let me play devil's advocate, Mr. Grandy.
First of all, you are aware that on instances like the Ticket-
to-Work, we are trying to remove some of the disincentives--the
barriers--that are in the way for the disabled to return to the
work force. This committee has been high-profile on that, not
only in this Congress, but in the last Congress.
From the policy perspective, since we are talking about a
fairly significant shift, the devil's advocate position is
this: if Goodwill or other tax-exempts were allowed to claim
the WOTC, would that be in competition with the for-profit
companies to attract workers--some sort of bidding up for wages
at the entry level? I mean, is this something we should be
concerned about, or not?
Mr. Grandy. No. Again, as I pointed out, we are in business
to provide a service between employers and employees. In many
cases, the real barrier that we have to break is the public
attitude toward people with disabilities. A lot of employers,
particularly small employers, are not going to be inclined to
hire somebody with a disability--ADA notwithstanding, WOTC
notwithstanding--because they say, ``I would like to do
something along these lines, but I have very narrow margins.''
Right now with this tight labor market, you are seeing
increased costs of hiring and retention. More and more
companies are turning to us as intermediaries and saying, ``Can
you help us probe these markets: people coming off welfare, ex-
felons, SSI recipients, people with a variety of disabilities?
What is the cost of training them and keeping them in our
workplace? What are the post-placement services that we will
need?''
This tax credit allows us more opportunity to do that. So I
think the people that we would hire would continue to be those
transitional employees that we would then perhaps turn over to
a business--a Marriott Corporation, or a TJX. That would
enhance their bottom line, because they would get competent
workers that would not cost them the money that otherwise they
would have to spend out of their HR budgets.
So I think there is no argument to be made that we are
somehow competing. We are trying to mine what we think is a
potential source of workers that have been left out of the mix,
even in the most buoyant economy. That is the sole reason we
support H.R. 2101 at this time.
Mr. Hulshof. Thanks for your answers.
Mr. Grandy. Thank you, Mr. Hulshof.
Mr. Portman. If you could stay for awhile, I have a couple
of follow-up questions. I appreciate your being here. I know
you were in the Congress when we had a big debate over the old
targeted jobs tax credit. I was one of those who expressed a
lot of concerns about that program. It came out of concerns
raised locally, actually, from some of my businesses who, when
I solicited their input on this, said, ``Rob, we would have
hired them anyway.'' It was a windfall. These are companies in
a relatively low--at that time--unemployment area of the
country, the greater Cincinnati area.
They said, ``Frankly, we would bring these people in just
as we would have, anyway. Then we look around and see who can
qualify for the tax credit.'' Therefore, I like the new WOTC. I
think it is better. I think folks on preemployment
certification is a good idea. I think targeting groups, such as
the disabled, is a good idea. I have been more supportive of
this program.
We also now have a change of circumstance of an even
tighter labor market, nationally. It may be more comparable to
what we had in greater Cincinnati 4 or 5 years ago. I think the
latest unemployment figures are near 4.2 percent. You mentioned
earlier that is practically full employment. Many economists
consider that a full employment situation.
I guess my question is a general one. First, having
experience on this side of the dias, and having been on the
policy side--if you could put that hat on--What additional
incentives do we need in that kind of a full employment
marketplace? For the disabled workers, in particular, and these
other targeted areas, isn't it enough to simply incentivize
these companies to go to Goodwill, or to go to a for-profit
intermediary, which I understand many of them do now?
Mr. Grandy. Yes, they do now. As a matter of fact, we
compete with companies like Lockheed and EDS, now, for
employment and training dollars, because they are in that
business.
Mr. Portman. Is there not enough incentive in the system
now, with this relatively full employment economy we have, to
provide that downstream to you, as compared to establishing
what you said is a precedent? You said it may be a good
precedent to expand on. I am very concerned about that
precedent.
We have, in our Medicare and Social Security systems a
crisis. We can argue about how serious the situation is, but we
simply do not have the payroll taxes coming in to pay for the
benefits starting in 13 years. That projection is relatively
conservative because of baby-boomers, people living longer, and
lower fatality rates.
So to get into the payroll area and create that precedent,
not just here, but maybe as an alternative to what some people
have talked about with minimum wage. Forget minimum wage; just
take it out of the payroll taxes. People have talked about it
in terms of the EITC. Forget the EITC, which is a terrible
program to administer. There are a lot of problems with EITC in
terms of missed payments and fraud. Take it out of the payroll
tax.
If we go down this road of payroll taxes, which could start
here, I think we are going to find ourselves in even more of a
quandary. So I just ask you, is there a way to enrich this
program, or simply depend on what we have now, which is a tight
labor market, to make sure those benefits slow down to the
Goodwills of the world?
Mr. Grandy. Well, first of all, Mr. Chairman, what I would
say is that there is every indication that this tight labor
market that I reference in my testimony is going to be with us
for some time. At the same time, there is a labor surplus and a
growing skill deficit. The people that are being hired do not
have the skills to perform the jobs. That does not necessarily
just include the people that traditionally have been served by
Goodwill.
That is forcing organizations like ours to get much more
into remedial education kinds of training, much of which
continues after somebody has been placed. For example, the New
York City Goodwill has created a program called ``Member for
Life.'' You get a little plastic card with a toll-free number
on it. That tells the employee and the employer that if this
employment situation does not work out, we will go back, either
retrain or replace the employee, and simultaneously find the
employer somebody whose skill sets are more harmonious with his
or her workplace.
But just to give you an idea of the kinds of things we are
seeing in our training facilities right now that we know will
be ongoing and sustained, we do an enormous amount of computer
skills training, because it is so much in demand. What we learn
in almost every facility that is doing basic computer skills,
word processing and things of that nature, is that our classes
are being increasingly staffed with students that cannot read,
let alone understand computer language. They don't understand
English, or Spanish, or whatever their native tongue is. So we
are finding, as every employer is finding, that the cost of
training is significant.
Goodwill essentially runs like a business. If our stores
don't make money, we don't fall back on grants and loans. We
are 95 percent capitalized by private sector dollars. It is
very rare that we get Federal, or even State pass-throughs.
What we find is that if we can't generate the revenues to
increase our training portfolio, we will not be competitive in
this business. We will not be able to supply that qualified
labor force, whether they are disabled, ex-felons, or welfare
moms--or all three.
So, I would again say I can understand from a policy point
of view piercing the veil of using a payroll tax in this very
narrow instance. I would be the first one to say that I would
not use this as a precedent to expand, for whatever laudable
social purpose you would want to fund after this. I would say
that based on what we have seen with the Welfare-To-Work law,
with the Workforce Investment Act, and with Kennedy-Jeffords--
all of which are trying to make our organizations more outcome-
based and customer focused, and putting dollars into the
consumers' hands, as opposed to just going to Government
programs, we need to be more competitive. These kinds of tax
credits are infinitely better for our organizations to flourish
in this competitive environment than broad-based grant programs
or some kind of pass-through to the State level.
Mr. Portman. Thank you, Mr. Grandy. I appreciate, again,
your testimony. Mr. Houghton, would you like to take the gavel
and ask questions?
Chairman Houghton [presiding]. OK, let us have our next
panel.
So I am going to introduce everybody. While everybody is
getting arranged, I want to thank them very much for being
here.
We have the Honorable Don Balfour, a State Senator from
Georgia, vice president of the Waffle House, Incorporated, and
member of the Executive Committee of the National Council of
Chain Restaurants. Thanks very much, Senator, for being here.
Howard Schechter is chief executive officer of PenOp
Corporation in New York. Mr. Schechter, I guess I see you over
there. How are you? Nice to see you. You are going to have some
visuals?
Mr. Schechter. Yes.
Chairman Houghton. Then we have Carlos Espinosa, policy
specialist for the Center for Community Change. William
Signer--where have I seen you, Mr. Signer? Mr. Signer from the
National Employment Opportunities Network; Mark Jacobson, vice
president, Corporate Human Service, TJX Companies, and Fred
Kramer, director, Community Employment Training at Marriott
International.
So why don't we begin? Mr. Balfour, would you give us your
testimony?
STATEMENT OF HON. DONALD BALFOUR, VICE PRESIDENT, WAFFLE HOUSE,
INC., ATLANTA, GEORGIA, AND MEMBER, EXECUTIVE COMMITTEE,
NATIONAL COUNCIL OF CHAIN RESTAURANTS
Mr. Balfour. Thank you, Mr. Chairman. I have written
remarks that I have brought to the Subcommittee. I ask that
they be put into the record in their whole.
I am Don Balfour, vice president with Waffle House. I am
appearing today as a member of the executive committee of the
National Council of Chain Restaurants.
NCCR represents 40 of the Nation's largest multiunit and
multichain restaurant companies. Collectively, these 40
companies own, operate, or franchise more than 80,000
restaurant establishments. NCCR companies, many of which you
are familiar with: Waffle House, Pizza Hut, McDonald's, Ryan's,
Applebee's, Taco Bell, Little Caesar's, Cracker Barrel, KFC,
and Burger King, just to name a few.
NCCR strongly supports and recommends a permanent extension
of the WOTC program. Our industry is ideally suited to utilize
these tax incentives to facilitate the employment of
individuals. NCCR member companies offer convenient locations,
entry-level positions with opportunities for advancement, and a
steady need for workers.
Since the WOTC was crafted in 1996, over 600,000
individuals have been hired, 86 percent of whom were previously
public assistance recipients. In the last 6 months, Waffle
House has reached in the local community throughout the Nation
and pre-screened over 15,000 individuals. Every one of the
3,000 persons it found eligible were offered employment. Those
accepting employment were given extra attention, training, and
retention considerations from the unit manager, who in turn was
given a bonus for his extra effort. The unit manager also gets
a larger retention bonus the longer the employee stays with the
company.
In our opinion, the single best reform that can be made to
improve the efficiency and effect of the program is to make it
permanent, or at least make it a long-term extension. The
shortness of the program--1 year, or 9 months--makes it very
hard for companies to start the program and to continue it.
Permanent renewal makes it easier for companies like ours to
make it part of their business strategy. Permanent renewal
makes it easier for employers to develop local community
outreach programs, and so forth.
Earlier I heard some of you voicing concerns over some of
the States, and some of the things that were going wrong in
some of the States. I can speak from experience. In Georgia we
had some problems. Some of the problems occurred because of the
fact that it expired. After it expired, the three or four
employees that were doing WOTC the Governor put someplace else
they were needed. Four or five months later when it was finally
extended, there was a program, but no employees. There was no
one who had any history of how the program worked. It was
basically started all over again. I cannot over-emphasize the
need to make this a permanent extension.
Mr. Chairman, the National Council of Chain Restaurants has
a long record of involvement on these programs. As an advocate
of the WOTC program, NCCR would recommend that it is a valuable
way to reach out and attract workers in an increasingly
demanding labor market. Someone had mentioned earlier today
about unemployment being close to zero. We may debate if that
is the case. But I would suggest to you that those that are
left on unemployment at this point in time are the hard-core
unemployed. They are the hardest of the hard-core unemployed.
If the program were needed, it is needed more now than ever.
I encourage Congress to proceed with the passage of H.R.
2101, and the permanent extension of the WOTC program. Thank
you very much, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Donald Balfour, Vice President, Waffle House, Inc.,
Atlanta, Georgia, and Member, Executive Committee, National Council of
Chain Restaurants
Mr. Chairman and Members of the Subcommittee, I am Donald
Balfour, Vice President of Waffle House, Inc. I am appearing
today as a member of the Executive Committee of the National
Council of Chain Restaurants (NCCR). NCCR represents forty of
the nation's largest multi-unit and multi-state chain
restaurant companies. Collectively, these forty companies own,
operate or franchise more than 80,000 restaurant
establishments. Chain restaurants are busy in neighborhoods all
over America, and you know us as Waffle House, Pizza Hut,
McDonald's, Ryan's, Applebee's, Taco Bell, Little Caesar's,
Cracker Barrel, KFC, Burger King, and a host of other well
known food service brands.
Last night at midnight, the law that brings us all together
today--the Work Opportunity Tax Credit (WOTC)--expired again.
That is unfortunate for the thousands of disadvantaged
individuals who are, or could be, moving from welfare to work
under this program. For at least one of the targeted groups
eligible for WOTC, 16- to 17-year-old youths working during the
summer that live in empowerment zones or enterprise
communities, the timing of this expiration is particularly
unfortunate. However, it is encouraging to know, Chairman
Houghton and Representative Rangel, that you and 22 of your
colleagues on the Ways and Means Committee are supporting H.R.
2101, a bill that calls for a permanent adoption of the WOTC.
None of the targeted groups should be left without the avenues
to employment this statute is intended to provide at all times
of the year. Today state employment service offices are taking
their WOTC application materials off their desks because under
the law WOTC wages ``. . . shall not include any amount paid or
incurred to an individual who begins work after . . .''
midnight last night.
You see, there is a real difference between reinstating the
expiring research and experimentation (R&E) tax credit and the
Work Opportunity Tax Credit. Corporate accountants can always
come back without much difficulty and make the calculations
necessary to account for a retroactive reinstatement of the R&E
credit. However, business managers who will be making thousands
of employment decisions during the period of WOTC expiration
don't have that luxury. The real victims of this approach are
welfare recipients who want to work but who lack basic skills
to get that first job.
NCCR strongly supports and recommends the permanent
extension of the WOTC. Our industry is ideally suited to
utilize these tax incentives to facilitate the employment of
individuals that have extra supervisory costs associated with
their initial hiring and training. NCCR member-companies offer
convenient locations, entry level positions with opportunities
for advancement, and a steady need for workers. Since the WOTC
was crafted in 1996, over 600,000 individuals have been hired,
86% of whom were previously public assistance recipients.
Mr. Chairman, between January 1 and June 21, 1999, Waffle
House reached out to local communities throughout the nation
and pre-screened over 15,000 individuals. Every one of the
3,000 persons eligible for WOTC was offered employment. Those
accepting were given extra attention, training and retention
consideration from their Unit Managers, who in turn, were given
a bonus for their extra effort. The Unit Manager not only gets
a bonus for hiring the eligible person, but also gets a larger
bonus for retaining that person.
The single greatest deterrent to the full utilization of
WOTC is the on-again and off-again nature of the credit. That
is true within our industry, and it must be true in others. By
advocating a permanent extension, we are not suggesting we are
opposed to oversight or changes in the program. We can only
report to you that expirations and short-term extensions are
counterproductive to those that manage, promote or depend on
the WOTC to facilitate the transition to private sector
employment.
In our opinion the single best reform that can be made to
improve the efficiency and effectiveness of the program is to
make it permanent. Here are the reasons why:
Permanent renewal makes it easier for any business
to incorporate WOTC into their routine business strategies and
operations.
Permanent renewal will allow employers to develop
local community outreach programs to locate and hire targeted
individuals. Several NCCR member companies have such programs,
and more companies would if it were not for the interruptions
in WOTC itself.
Permanent renewal would permit the state
employment services offices to be more effective administrators
of the program. Just as the on-again, off-again nature of the
program keeps employers from committing resources to fully
utilize WOTC, it keeps the state agencies from committing
resources to properly administer the credit.
Finally, Mr. Chairman, the Work Opportunity Tax Credit has
been a valuable tool for the Governors in meeting their
responsibilities under the welfare reforms enacted in 1996.
Quick passage of H.R. 2101 is critical for the reasons I have
mentioned. It would demonstrate the contribution of national
and state governments in combination with the private sector to
achieve the mutual goal of encouraging self-sufficiency in the
workplace.
Mr. Chairman, The National Association of Chain Restaurants
has a long record of involvement with this program and its
predecessors. I hope that our comments have helped the
subcommittee today. As an advocate of the WOTC, the NCCR can
recommend it as a valuable way to reach out and attract workers
in an increasingly demanding labor market. Many of the
additional improvements you are suggesting in this legislation
seem worthy. These include expanding the definition of wages
eligible for the WOTC to include accident and health plan
benefits and employer contributions; educational assistance;
and dependent care assistance.
NCCR encourages Congress to proceed expeditiously with the
passage of H.R. 2101 and the permanent extension of the WOTC.
Thank you.
Chairman Houghton. Yes. OK, Mr. Schechter.
STATEMENT OF HOWARD SCHECHTER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PENOP, INC., NEW YORK, NEW YORK, ACCOMPANIED BY
YOLANDA PARKER, MANAGING PARTNER, KMS CONSULTING, HOUSTON,
TEXAS
Mr. Schechter. Thank you, Mr. Chairman and the Committee. I
appreciate the opportunity to speak here. I think our
perspective is a little bit different today.
I would also like to introduce Ms. Yolanda Parker, who is
the Managing Partner of KMS Consulting, who has helped with
designing the technology system infrastructure for Randalls
Food Market in Texas in terms of meeting all of the HR
requirements. That includes the submission of the WOTC 8850
Forms, which is currently only able to be submitted today in
paper. That is the issue that we would like to address and
demonstrate to you.
First, I would like to request that my full statement be
put into the record.
Chairman Houghton. Without objection.
Mr. Schechter. I am going to be very brief and turn to the
technology, eventually, when we can see it. Let us see if it
will, in fact, work. This is always the tricky part. I don't
know if you are going to be able to see the screen.
Chairman Houghton. Somebody ought to turn the lights down.
Mr. Schechter. I will get there in a second. Some very
brief remarks. First, I applaud the committee in previously
directing the IRS, in particular, to move to an all electronic
submission process for all of us. I think we clearly see that
trend taking place in businesses across the United States, and,
in fact, around the world, where we are trying to remove paper
from our daily processing environment.
In fact in the Government itself in the regulatory bodies
like FDA, EPA, and in the States have all used, or are enacting
legislation to allow the ability to sign and execute documents
electronically. In fact, the governor of Nebraska used our
technology to sign into legislation their signature of law.
This allows them to accept work today as if it were pen and
paper.
Chairman Houghton. You might pull that microphone a little
closer to you.
Mr. Schechter. I will surely do that. I think the one
anomaly today in the WOTC is the 8850 Form, which is required
to be submitted in paper. We think this is putting a burden on
the employers who are making a concerted effort to streamline
their business processes and be able to deliver an all-
electronic medium.
The way we look at it is to simplify not only the work
process, but to be able to ensure that it is legal, secure, and
something cultural for both the employees and the employer.
There seems to have been a question and concern of fraud. I
would contend that paper has as much fraud in it today as any
other methodology. In fact, I will contend that some of the
electronic technology--and hopefully what we will show you
today--will show that there is an ability to reduce the fraud
process.
With that, I would really like to show you the technology.
I think it makes it very simple. In fact, we have gone to the
IRS web site and pulled down the 8850 Form, which you can have
electronically, but you need to be able to sign it. We have
inserted several icons on this document for where signatures
would be placed. This is the one of the job applicant.
I would ask someone from the committee or one of the other
panelists if they would like to volunteer and sign this
document. In essence, what we are doing is asking for the name
of the signatory. Do we have any particular volunteers that we
might be able to induce to do this? Everyone is afraid that it
will be binding. [Laughter.]
Mr. Signer. I will sign, but you may not be able to read
it.
Mr. Schechter. That is OK. I am just going to type in your
name.
Mr. Signer. William Signer.
Mr. Schechter. A-R?
Mr. Signer. S-I-G-N-E-R.
Mr. Schechter. S-I-G-N-E-R.
Mr. Signer. Right.
Mr. Schechter. OK. If you will read the intent statement.
Just like any person who is walking into any employment office
for any company that taking place in WOTC, they would have the
name of the individual. They would have the reason they are
signing a document to create that legally-binding environment.
Once you have read that, we will say, ``Sign.'' We are
encrypting this document to protect it from being altered. If
you will just sign on the dotted line like you would anything
else. We will hit ``Enter.''
The document is signed, and it is almost ready to be
submitted with the entire package for employment, including an
I-9, which can be submitted electronically. I will now sign
this document. I will tell who I am and why I am signing. I
will effect a signature. By doing so, this form is now ready
for sending off.
I have done a couple of things here.
Chairman Houghton. Is that your signature?
Mr. Schechter. Well, I intentionally signed it poorly for a
particular reason. I want to address the concern over fraud and
alteration to the document.
We are all familiar with what we do on a piece of paper. We
make an assumption that once it is signed on a piece of paper,
no one touches it or does anything with it. That may or may not
be quite true.
If I go into any one of these paragraphs and bring up the
tool to eliminate some text, which I have just done, and tap on
``a signature,'' I can check this document and verify whether
anything has changed. It says it has changed since it was last
signed. When it does that, it will come back and invalidate
that signature. So it protects the document from being altered
in any shape and form, ensuring that when it is sent
electronically, it will stay in the permanent form.
The other aspect is from an employer standpoint, given my
policies and procedures inside my company, I can take my
particular signature and enroll me so that I have signatures on
file that I can compare--my signature dynamics. If you look at
the laws in Texas, Nebraska, and soon to be New York, this is
required. I can compare it against any other signature I have
on file. Lo, and behold, it says that signature does not look
like anything that I have ever signed before. My policies and
procedures inside my company would not accept that, and
therefore would not process this form. This would hopefully
eliminate any of the potential fraud that could circulate
around the filing of this document.
With that, thank you.
[The prepared statement follows:]
Statement of Howard Schechter, President and Chief Executive Officer,
PenOp, Inc., New York, New York
Chairman Houghton, Congressman Coyne and Members of the
Subcommittee, my name is Howard Schechter, Chief Executive
Officer of PenOp, Inc. I am pleased to testify before this
subcommittee on the Work Opportunity and Tax Credit (WOTC). I
am accompanied by Ms. Yolanda Parker of Randalls Food Markets
Inc. of Texas.
By way of background, PenOp is a New York-based developer
of software for electronic signatures. As a Chief Executive
Officer of an electronic commerce company, I congratulate both
you Mr. Chairman and members of the Subcommittee in
incentivizing the Internal Revenue Service (IRS) to achieve 80%
electronic filing of income tax returns by 2007. As a business
man I am also supportive of the IRS's efforts to develop a new
model of account management to increase electronic filing.
That is why I am puzzled by the IRS's reluctance to allow
the electronic filing of IRS Form 8850. Mr. Chairman as you
know, IRS Form 8850 is the form utilized by the IRS and the
employer to establish a record that the job applicant is a
member of the Work Opportunity Tax Credit (WOTC) target group
and/or the Long Term Family Assistance group. Presently, under
IRS rules, IRS Form 8850 must be prepared and signed by
employers and employees in ink. It is my understanding that IRS
regulations do not allow this form to be filed electronically
because they might be subject to increased fraud.
We at PenOp share the IRS's concern about fraud, however we
also believe that the service's insistence on paper and ink is
an unnecessary and costly burden to employers. A particular
example of such an employer is Randalls Food Markets Inc. of
Texas.
Randalls Food Markets is one of the many companies
participating in the WOTC program. As a corporation, Randalls
is committed to welfare reform and has hired hundreds of
individuals off the welfare rolls. Randalls believes that the
WOTC program is an effective means of incentivizing private
employers to hire individuals who, but for this program, might
still be on welfare. However, this subcommittee must understand
that there are certain costs, some unnecessary, which a private
corporation must incur to participate in this worthwhile
program.
It is Randalls' belief that the Congress and the IRS have
developed the WOTC application and certification process with
the intent of safeguarding against fraud but also that it be
efficient and easy for employers to use. By insisting on a pen
and ink signature as the only acceptable means to guard against
fraud, the IRS has increased the inefficiencies and cost in
obtaining the credit. In my opinion, this creates a serious
disincentive for willing companies to participate.
Randalls Food Markets Inc. like many other companies, has
invested significantly in the automation of their application
and hiring processes. Currently all employment applications and
other hiring paperwork with the exception of the WOTC
applications are completed electronically. The anomaly in this
process is Form 8850 and it's requirement that the form be
completed and signed in ink. Processing of this single piece of
paper, in an otherwise electronic process, therefore becomes
quite expensive.
Adding to the frustration, is a current backlog of WOTC
certifications that exists in the state of Texas. Randalls has
received certifications of less than half of their WOTC
eligible new hires. Based on budgetary constraints and
technological challenges, it is likely that this backlog will
continue for some time.
As I indicated previously, we at PenOp are concerned about
possible fraud in the application process. While we believe
that fraud is the exception rather than the rule, we in the
private sector and you in the Congress must not underestimate
the IRS's concern.
However, we at PenOp believe that there are other and more
cost efficient ways to safeguard against fraud while expediting
the application and certification process. We believe that the
fraud risk can be addressed by utilizing secure electronic
signatures technology. In fact, we believe an electronic
version of form 8850, bearing a secure electronic signature, is
a greater deterrence to fraud than paper form.
A secure electronic signature involves a person, whether
employee or employer, picking up an electronic stylus or pen
and using it to sign the person's autograph on a digital tablet
attached to a computer. Software in the computer would measure
the unique qualities of the person's signature and attach those
measurements, together with an image of the signature, date and
time and other auditing information, to an electronic version
of Form 8850. The proper use of cryptography would prevent
anyone from clipping the signature from one document and
pasting it to another. The reliability of this process, and the
quality of the evidence gathered, could be much greater than
that provided by paper and ink.
I recommend that this subcommittee consider legislation
authorizing electronic signatures or a comparable
authentication process as an acceptable method under the
application and certification procedure.
The secure signature method proposed here is regularly used
in consumer sales transactions by insurance companies such as
American General Life and Accident Insurance Co.. Before
beginning to use the method in the 26 states where American
General does business, the company received approval from the
relevant state insurance commissioners.
I further suggest that the following rules would apply:
1. A ``secure handwritten signature'' would satisfy these
standards:
a. It would capture an image and forensic measurements of
the signature.
b. It would store the image and measurements, plus date/
time, name of signer, checksum of the Form and reason for
signing, in an electronic envelope.
c. The checksum would have to ensure that the envelope is
reliably connected to the content of the Form.
d. The envelope would be encrypted.
2. Secure handwritten signatures would be captured at the
employer's location on an electronic version of Form 8850.
3. The employer or its agent would undertake to store the
original electronic form and signature the required number of
years.
4. The employer or its agent would transmit to the relevant
state employment security agency the type of image of the
signed Form (including image of the signatures) desired by the
agency. This could be either (a) the electronic version sent
via electronic communication, (b) a fax of the Form, or (c) a
paper printout delivered physically. With this transmission the
employer would undertake to store the original electronic
record and make it available for audit.
Mr. Chairman, I once again thank you, the members of your
subcommittee and the staff for allowing me to testify. Both Ms.
Parker and I would be pleased to answer any questions.
Chairman Houghton. Thank you very much. That is
fascinating.
OK, now, Ms. Parker.
Ms. Parker. I am here to answer questions.
Chairman Houghton. You are here to answer questions. OK. We
will move along to Carlos Espinosa.
STATEMENT OF CARLOS ESPINOSA, POLICY SPECIALIST, CENTER FOR
COMMUNITY CHANGE
Mr. Espinosa. Good morning, Mr. Chairman and Members of the
Subcommittee. My name is Carlos Espinosa, and I am a policy
specialist with the Center for Community Change, a national
non-profit organization that provides assistance to
organizations in low-
income communities across the country.
I appreciate this opportunity to testify before you today
to discuss our concerns with the Work Opportunity Tax Credit.
In my testimony today, I would like to summarize my extended
comments by making the following points.
We are concerned that the Work Opportunity Tax Credit is
not generating new jobs. There is some evidence that suggests
employers may be using WOTC in a manner that turns over low-
wage workers in order to maximize the value of the credit by
replacing existing employees with new credit-bearing workers.
The program's current design makes it impossible to assess
whether WOTC is resulting in new job creation, or whether it is
extensively promoting the churning and displacement of workers
no longer eligible for the credit. In addition, we believe
there is a correlation between the companies with the greatest
turnover, and those receiving the largest windfalls.
The first step in improving the program's effectiveness is
to collect and disclose information that focuses on the worker,
by tracking retention periods after the credit is exhausted.
This would uncover whether the program is facing some
underlying challenges.
Also, the Labor Department's employment and training
administration should, as part of WOTC's annual self-
evaluation, disclose the names of the companies receiving the
credit in excess of $100,000. This accountability too will help
expose companies who are abusing the program.
We strongly believe the WOTC's effectiveness could be
increased if more programmatic information were disclosed, and
regulations written for the program. Specifically, the
regulations should include, but not be limited to information
that discloses the number of WOTC employees, and total number
of employees in the same job categories that WOTC employees are
being hired into, and disclose the number of WOTC employees who
continue to work for the company 6 months after the credit is
exhausted, as well as the number who are no longer so employed
with the company.
This information, which is vital to the program's
management, will allow the ETA to better track individuals and
employers participating in the program in order to determine
whether a deliberate turnover of non-WOTC-eligible employees is
occurring in the same periods employers are hiring WOTC-
eligible applicants. This collection of additional information
that focuses on results-oriented assessments will provide
administrators the ability to draft more extensive evaluations
of the program, which, in turn, would allow Congress to make
better policy recommendations.
Moreover, we believe there is a strong correlation between
the companies receiving the greatest windfalls and those with
the highest turnover of non-WOTC-eligible workers. Therefore,
in order to maintain accountability, and create a disincentive
for abuse, an addendum ought to be included in the program's
annual self-evaluation that lists the companies for the fiscal
year receiving the credit in excess of $100,000.
Clearly, whatever your perspectives on the merits of this
program, the disclosure of information can only make for better
public policy. Thank you, Mr. Chairman. That concludes my
testimony.
[The prepared statement follows:]
Statement of Carlos Espinosa, Policy Specialist, Center for
Community Change
Good morning Mr. Chairman and members of the committee, my
name is Carlos Espinosa and I am a policy specialist with the
Center for Community Change. I appreciate this opportunity to
testify before you today to discuss our concerns with the Work
Opportunity Tax Credit.
The Center for Community Change
The Center for Community Change is a national non-profit
organization that provides technical assistance to community-
based organizations in low-income and predominantly minority
communities around the country. We work with a broad range of
organizations, all of which are working to improve the quality
of life in their neighborhoods through a range of strategies.
These strategies include community organizing, housing and
community economic development, service provision, and
advocacy. The organizations we work with are governed and
controlled by low-income people.
Introduction
For over twenty-five years, many have raised concerns about the
validity of employment tax credits. Theoretically, the credit is an
inducement to cover the additional costs associated with hiring `hard-
to-employ' individuals from disenfranchised backgrounds. Over this time
period, billions in forgone tax revenue were lost to companies
participating in these employment programs. But to what result? Is this
the best use of limited resources? In the end, we do not know because
the program lacks access to data that would allow us to assess the
program's merit.
Similarly, the program has faced several programmatic challenges
over its existence. These challenges have not been accurately addressed
partly because vital performance information is not sought by
administrators, nor reported to the public. These challenges compromise
the program's effectiveness and intended goals -to provide
disenfranchised populations the opportunity of entering the labor
market.
Summary
In my testimony today, I'd like to make the following two points:
(1) We are concerned that the WOTC program is not generating new
jobs, but rather replacing old `credit-less' workers with new `credit-
bearing' ones. There is some evidence that suggests some employers may
be using WOTC in a manner that turns over low-wage workers in order to
maximize the value of the credit. The program's current design makes it
impossible to assess whether WOTC is resulting in extensive and
pervasive churning and displacement. In addition, we believe there is a
correlation between the companies with the greatest turnover and those
receiving the largest windfalls.
(2) The first step in improving the program's effectiveness is to
collect and disclose information that focuses on the worker by tracking
retention periods after the credit is exhausted. This would uncover
whether the program is facing some underlying challenges. Also, the
Labor Department's Employment and Training Administration should
disclose the names of companies receiving the credit in excess of
$100,000 in an addendum to the program's annual self-evaluation. This
accountability tool will help expose companies who are abusing the
program.
Churning and Displacement: Is this Really Occurring?
Critics have long been concerned that the WOTC program promotes the
churning and displacement of employees whose credit was exhausted.
Unfortunately, data is not collected in a manner that allows
administrators to determine whether employers are intentionally turning
over their non-WOTC eligible workforce. Program audits conducted by the
Department of Labor's Office of Inspector General (OIG) on WOTC's
predecessor--the Targeted Jobs Tax Credit (TJTC)--uncovered several
concerns, but never openly addressed the issue of churning, nor
displacement. Clearly, these issues should actively be pursued by DoL
administrators.
In 1991, a small scale OIG audit of Tennessee's TJTC program
briefly highlighted the concern. The audit discovered that ``some
employers were laying off employees in the same job classifications and
in the same quarters in which they were hiring TJTC applicants'' (DoL
OIG 1991).
This statement was disputed by the Tennessee Department of
Employment Security, citing that ``. . . it would be extremely
difficult to draw any valid conclusions regarding employer exploitation
of the TJTC program without performing on-site audits of employer
personnel records and their employment practices'' (1991).
In Baltimore, Maryland, a group of workers under a living wage
contract at Patterson High School where laid off and replaced by a
private for-profit company who hired low-wage welfare recipients.
Without the disclosure of additional information and more detailed
evaluations, we cannot know whether WOTC is generating net new jobs, or
whether it is contributing to an already volatile low-wage labor
market.
The Windfall and its Effects on Churning and Displacement
Audits by the Department of Labor's Office of Inspector General
(OIG) indicate that employment tax credits provide no incentive for
businesses to hire individuals from targeted populations, yet the
public has no access to the names of these companies and amount of
public subsidy they receive. In 1994, for example, the OIG found that
``nationally, we project that employers, . . . would have hired 92
percent of the individuals even if the credit had not been available''
(DoL IOG 1994). This finding, echoed in a 1993 audit of Alabama's
program, discovered that employers would have hired 95 percent of
participants regardless of the tax subsidy.
Linda Levine of the Congressional Research Service (CRS) wrote in
her review of TJTC from 1978 to 1994 that ``[p]erhaps somewhere between
70 percent and 90 percent of the credits claimed under the TJTC program
were for hiring that would have occurred without benefit of the credit.
It appears, then, that amendments to the TJTC which Congress enacted to
minimize windfalls did not often achieve their purpose'' (Levine 1995).
Another CRS report on TJTC described the windfall from another
angle. In their assessment of TJTC from 1978 to 1987, employers were
increasingly using management assistance companies (MACs) to screen
already hired workers for firms--that is they identify TJTC-eligibles
after firms have made their hiring decision, but before the individuals
started working. Consequently, the report discovered that ``most of the
certifications generated by MACs represent windfalls to employers''
(LeGrande 1987).
Clearly, the financial windfall generated by this program is a
natural phenomenon that cannot be eliminated. However, given the
program's current design and lack of disclosure, no one knows the
extent to which taxpayer dollars are being wasted or whether companies
receiving the greatest windfall are turning over workers in order to
maximize the credit.
The First Steps to Improving the Program: Disclosure
We strongly believe that WOTC's effectiveness could be increased if
more programmatic information was disclosed and regulations written for
the program. The following information should be disclosed:
An addendum to WOTC's self-evaluation that reports
retention rates of participants by tracking individuals during and for
a period of time after their credit has exhausted. This information,
which is vital to the program's management, will allow them to better
track individuals and employers participating in the program in order
to determine whether the deliberate turnover of non-WOTC eligible
employees is occurring during the same periods employers are hiring
WOTC eligible applicants. The collection of additional information will
also provide the Employment and Training Administration the ability to
draft more extensive evaluations of the program, which in turn will
allow Congress to make better policy recommendations.
Another addendum to the evaluation should list the
companies, for that fiscal year, receiving the credit in excess of
$100,000. We believe there is a strong correlation between the
companies receiving the greatest windfalls and those with high turnover
of non-WOTC eligible workers. Therefore, in order to maintain
accountability, provisions should be included to authorize the ETA to
include this listing.
Thank you, Mr. Chairman. That concludes my testimony.
Chairman Houghton. Thank you very much. We really
appreciate that.
OK, now we go to Mr. Signer.
STATEMENT OF WILLIAM A. SIGNER, CHAMBERS ASSOCIATES INC., AND
COUNSEL, NATIONAL EMPLOYMENT OPPORTUNITIES NETWORK
Mr. Signer. Good morning. My name is Bill Signer. I am here
today in my capacity as counsel to the National Employment
Opportunities Network, ``NEON,'' a group of management
assistance companies who provide technical services to
thousands of employers who have hiring tax incentive programs.
I would like to begin by noting, and it has already been
noted this morning, that this hearing is taking place on the
first day of the Work Opportunity and Welfare-to-Work Tax
Credits having expired. From past experience, we know these
interruptions have a dramatic adverse impact in the programs'
effectiveness.
Employers must evaluate whether they want to continue
assuming the extra costs and risks of hiring welfare
recipients. Some decide not to. Others scale back their
efforts. Perhaps most damaging, a program hiatus always results
in dramatic increases in processing backlogs in the States.
This inevitably leads to certification denials due to lost or
misplaced paperwork. That is why NEON and the thousands of
employers we work with are pleased to support Chairman Houghton
and Mr. Rangel's bill, H.R. 2101, which calls for a permanent
extension, and a merger of the two programs.
Because DOL and IRS have done their jobs, most States have
well-run programs. Employers are responding. They actively
search for WOTC-eligible workers. For your review, I have
attached to the back of my testimony an example of the type of
outreach program that is going on. Outreach is conducted in
various ways by a lot of employers.
They pre-screen all job applicants. They have retrained
hiring managers and made adjustments to integrate unskilled
individuals into the workplace. These changes are disruptive,
frustrating, sometimes rewarding, and always expensive. The
bottom line: Employers have expanded their hiring pool to
dramatically increase the number of public assistance
recipients and others with limited job skills they interview
and hire.
Over 80 percent of those hired under WOTC came off the
public assistance rolls. That is a record, Mr. Chairman, which
you, Mr. Rangel, and this Committee should be proud of. The tax
credits make this possible. Without them, most employers would
drastically reduce or eliminate their welfare hiring programs.
While generally the program is working well, there are two
concerns the WOTC community hopes can be addressed this year.
The first is the fact that few males are being certified in the
program. Second, as you have heard earlier, in about 8 to 10
States there are significant processing backlogs.
We estimate that only 21 percent of the program
participants are male. Most employers participating in the
program would like to target more males. Despite their best
efforts, young men coming from households dependent upon public
assistance are not being certified. While better cooperation
between the State job services and food stamp offices could
help, we also recommend that you modify the definition of who
is a member of a family on welfare to include the parents, the
step-parents, the siblings, the step-siblings, and legal
guardians living in the household of a child on welfare. Such
individuals living in a welfare household share the same
obstacles to finding work as those currently being certified.
The problem of processing backlogs is also very
frustrating. Most States process requests for certification
within 30 days. Some States have significantly longer backlogs.
In those States, employers question the value of the program.
We have been working with both DOL and Treasury, and have made
significant modifications in some of our proposals to reflect
those concerns. We are currently working with the State job
services to further refine our proposal. We hope to have
something for you by the time of markup.
At this point, our thinking is that we would like to
propose that the committee, to help ensure a reasonably timely
certification process, leave it up to the employers who are
saying, ``Look, if we can't get something out of job services,
we are willing to go over to the agencies that are responsible
for verifying eligibility.'' The employer wuold go in and have
the agency fill out a form, which we have talked to DOL about
putting together.
As John Beverly talked about earlier, DOL has conditional
certifications. We would like that to be used for the purposes
of the employers' gathering the information and providing it to
the job services so that they have what they need to make a
determination whether someone is eligible. At that point, we
would ask that the job services, in a timely, expedited
process, make a decision as to whether the person is or isn't
eligible.
There are number of other issues which we would like to
bring to the Committee's attention. We strongly oppose the
Administration's proposed processing fee that was in their
budget. Employers already incur more costs than are offset by
the credit.
Because the pre-screening form is now part of the job
application, any program modification necessitating a change in
the form poses a real problem. We heard the discussion about
adding foster care this morning. The problem for employers is
that it will be difficult to retrieve the existing job
applications. If they file the wrong form they will not get a
certification. Employers would like some sort of grace period
in which they could file the existing pre-screening form, as
long they are hiring somebody from an existing category.
Finally, I was very impressed by what I saw this morning.
We are concerned that the integrity of the program is dependent
upon making certain that the pre-screening notice is filled out
and signed by the job applicant before he or she is offered a
job. Thus, we would support allowing the faxing--which is not
allowed now--of a signed pre-screening form. We have no
objections to the electronic filing, as was shown here, of the
pre-screening form so long as safeguards are put into place to
ensure an original form is signed by the job applicant, and is
maintained on file so that it can be verified at audit.
Again, please let me thank you for the opportunity to
present the views of NEON, and the thousands of employers we
work with.
[The prepared statement follows:]
Statement of William A. Signer, Chambers Associates Inc., and Counsel,
National Employment Opportunities Network
Good morning, my name is Bill Signer, and I am pleased to
have this opportunity to appear before the Subcommittee today
in my capacity as Counsel to the National Employment
Opportunities Network (NEON). NEON is comprised of management
assistance companies who provide technical services to
thousands of employers who have established hiring tax
incentive programs. The services they provide include:
designing a system for an employer to participate in welfare to
work hiring tax incentives; training hiring managers in how to
pre-screen those eligible; establishing sophisticated outreach
programs designed to maximize the pool of Work Opportunity and
Welfare to Work Tax Credit eligible job applicants interviewed;
helping complete, file, and track the paperwork required to
ensure that an employer receives the certification needed to
claim the credit; and working directly with state employment
services to assure that persons eligible for the tax credit are
certified by the states.
I would like to begin by noting that this hearing is
occurring on the first day after the Work Opportunity and
Welfare to Work Tax Credits expired. As you know, last year the
program experienced a 3\1/2\-month hiatus. From past
experience, we know these interruptions have a dramatic adverse
impact on the programs' effectiveness.
First of all, employers who are currently participating in
the program must evaluate whether they want to continue
assuming the extra costs and risks associated with
participating. Some decide not to. Others scale back on their
efforts. Employers not currently participating either defer
their decision or lose interest all together. Perhaps most
damaging, a program hiatus always results in dramatic increases
in processing backlogs by the state job services. This
inevitably leads to certification denials due to lost or
misplaced paper work.
That is why NEON and the thousands of employers we work
with are pleased to support Chairman Houghton's and Mr.
Rangel's bill, H.R. 2101, The Work Opportunity Tax Credit
Reform and Improvement Act of 1999, which calls for a permanent
extension and merging into one program both the Work
Opportunity and Welfare to Work Tax Credits. I also want to
commend the principal sponsors on the fact that their bill
enjoys the support as co-sponsors of almost every member of
this Subcommittee as well as a majority of both Republicans and
Democrats on the full Committee.
The disruptions that result from a hiatus are particularly
unfortunate in light of the fact that in the vast majority of
the states the WOTC/Welfare to Work community believes that the
program is working extremely well. This is in large part due to
the excellent job that has been done by the Department of
Labor's United States Employment Service headed by John
Beverly, and the IRS team headed by Robert Wheeler. Both have
done an incredible job in setting up the program and in being
responsive to the concerns of employers.
But what is even more encouraging is that over the past two
years and nine months since the inception of WOTC, employers
have responded positively to what this Committee and the
Congress wanted. Employers participating in the programs have
embraced the idea that in order for the program to work
correctly they had to dramatically change their hiring
practices. They have willingly done that and, as a result, have
expanded the breadth of their hiring pool to include public
assistance recipients and others with limited job skills and
minimal work experience. Over 80% of those hired under the two
tax credit programs came off the public assistance rolls, that
is a record, Mr. Chairman, of which the Congress should be
proud.
Since October of 1996, employers have responded in a number
of ways to the enactment of the WOTC program. These include:
Making sure that the mandated ``Pre-Screening Form'' is
filled out as part of the job application provided each entry level
applicant;
Establishing extensive corporate wide training programs
for hiring managers to inform them of the company's commitment to
hiring those eligible as well as to instruct them in how to help a job
applicant fill out a pre-screening form;
Providing hiring and retention bonuses for store and
hiring managers;
Establishing extensive corporate outreach programs
designed to maximize the number of WOTC/W-t-W hires; and
Undertaking mentoring programs to insure a successful
transition into the work place.
Because of the added costs involved in setting up and operating
those activities as well as the added training costs and relatively
high drop out rate involved, few companies could afford to justify such
extensive efforts without the partial financial offsets provided by the
Work Opportunity and Welfare to Work tax credits. Certainly, the
extensive efforts and costs involved should dispel any notion that
hiring tax incentives are a windfall to the employer.
While, generally the program is working well. There are two
concerns that the WOTC/Welfare to Work community hope can be addressed
this year. The first is the fact that few males are being certified in
the program. Second, in about ten states there are significant
processing backlogs.
We estimate that only about 21% of program participants are male.
This conclusion is based on a large sampling of about 90,000 hires in
calendar year 1997 and another 96,000 in 1998. Most employers
participating in the program would like to hire more males, but despite
their best efforts, young men coming from households dependent upon
public assistance are not being certified. There are two reasons for
this. First, the vast majority of states are qualifying very few people
through the food stamp program, the category under which young men and
women were originally supposed to qualify. Second, the definition of a
member of a family on welfare has been so narrowly interpreted that it
only includes those on the welfare grant and not those living in the
household once they turn 18 and are no longer eligible for welfare.
While better cooperation between the state job services and food
stamp offices could help to alleviate this problem, we also recommend
that you modify the definition of who is a member of a family on
welfare to include the parents, stepparents, siblings, step-siblings
and legal guardians living in the household of a child on welfare. We
believe that anyone who is living in a household with a child on
welfare who meets this definition is the type of person who the
Committee originally intended to assist through WOTC and Welfare to
Work Tax Credits. Inevitably, such individuals living in a welfare
household share the same obstacles to finding work as those currently
qualifying under the program and so deserve assistance. We urge the
Committee to make this change.
The problem of processing backlogs is even more troubling. Most
states process requests for certification within 30 days of receiving
the paperwork from the employer. Yet some states are backlogged
anywhere from 6 months to as much as 2 years. In those states, the
employers involved have a great deal of difficulty in motivating their
hiring managers to actively participate in the program and some
employers have discontinued their WOTC programs in certain problem
states. If employers are going to continue to participate in the
national welfare to work initiative, they need the assurance that the
program will work the way it was intended to.
To address this problem, we recommend that the Committee proscribe
a series of steps that will ensure a reasonable certification process.
Employers have indicated that when there are unreasonable delays, they
are willing to assist the job service to obtain the information needed
to verify eligibility. Thus, we propose that if a state job service has
not acted on a certification request within a specified period of time
after an employer has filed the necessary paperwork, the employer would
have the right to go to the agency responsible for verifying
eligibility (welfare, Social Security, food stamps, parole officer,
etc.) and ask it to fill out a DOL form that verifies eligibility. That
form would then be filed with the job service which would either issue
a certification or provide specific reasons as to why the applicant is
not eligible. A 90-day processing standard is what DOL already expects
from the states in the WOTC/Welfare to Work Handbook. We would propose
that similar procedures also apply to employer appeals of denials of
certifications.
We have had extensive discussions with both DOL and Treasury about
this proposal and have made significant modifications to reflect the
concerns they raised with us. We are currently working with the state
job services to further refine our proposal and hope to have the
details worked out before you go to mark up.
There are a number of other issues we would like to bring to the
Committee's attention.
Since the pre-screening form (IRS form 8850) is now part
of the employer's job application, program modifications that
necessitate a change in the 8850 are very costly for employers,
especially if they must change over to the new form in a relatively
short time frame. Employers would find it much less burdensome if they
could have a grace period which would allow them to replace the pre-
screening form through their normal process of restocking job
applications.
Thus, we would propose that for at least one year after any change
is adopted that requires a modification of the 8850, employers could
use either the old or new 8850. This grace period would not apply if
they hired someone from a newly added category. In that situation, they
would be required to use the new form.
We are opposed to the Administration's FY 2000 Budget
proposal to charge employers a user fee in order to receive a
certification. Many employers participating in WOTC and the Welfare to
Work Tax incentives are doing so despite the added costs that are not
fully being offset by the credits provided. To expect employers to make
cash payments to the government on top of the extra costs already
incurred when hiring welfare recipients, would in many cases result in
their abandoning the programs.
In addition, $20M a year has been appropriated out of Wagner-Peyser
Trust Fund for the state job services to administer WOTC and W-t-W. The
Unemployment Insurance Tax funds the Wagner-Peyser Trust Fund, which in
turn funds the services provided to employers and workers from the
state job services. Thus, in effect, if employers were required to pay
for certification services, they would be asked to pay for something
they have already paid for through the unemployment tax. Charging a
user fee would almost certainly discourage many small businesses from
participating in the program by adding a new up front cost to what many
of them already believe is a program which presents too many
administrative hurdles to be worth participating in.
As a community, we are concerned about recent proposals to
allow electronic filings of the pre-screening notice IRS form 8850. We
believe that the integrity of the program is dependent upon making
certain that the pre-screening notice is filled out and signed by the
job applicant before he or she is offered a job. Therefore, if
electronic filing is to be permitted, we recommend that employers be
required to maintain an original pre-screening form for at least 5
years after a certification has been granted. This would provide a
legitimate control against undercutting the Committee's original intent
in requiring that the pre-screening form be filled out and signed
before the job offer is made.
As an intermediate step, we would encourage the Committee to allow
the faxing of pre-screening forms since that would result in a signed
form being filed with the local job service.
To reduce the paperwork burden on employers, we would
encourage that the pre-screening form and the Individual
Characteristics Form (ICF) be made into one form. The ICF is a DOL form
which provides the backup information the job service needs to verify
eligibility. While we have no problems with the form itself, employers
would find it much easier to fill out and file a single comprehensive
form.
Finally, while the entire WOTC/Welfare to Work Tax Credit
Community actively supports a permanent extension of the program, past
experience indicates that this may be difficult. On this point, we urge
the committee to reflect on three points:
1. Hiring tax credits are no longer an experiment. The results are
in. They work very well. Tax measures that do what they are supposed to
should be made permanent.
2. If revenue constraints prohibit a permanent extension, I urge
you to grant a multi-year extension. The program suffers significantly
with annual extensions, and fewer welfare recipients get jobs.
3. If you are forced by circumstance to grant a multi-year
extension, please move the expiration date from June 30. Based upon
past experience Congress never completes a tax bill by June 30, and
rarely finishes before the end of the fiscal year. Thus a June 30
expiration virtually assumes a disruptive program hiatus. Since the
money needed to administer the program is provided on a fiscal year
basis we would urge that the Committee move any expiration date to
September 30 or December 31.
Again, please let me thank you for this opportunity to present the
views of NEON and the thousands of employers they represent.
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[An attachment is being retained in the Committee files.]
Chairman Houghton. Thanks, Mr. Signer, very much.
Mr. Jacobson.
STATEMENT OF MARK JACOBSON, VICE PRESIDENT, CORPORATE HUMAN
SERVICES, TJX COMPANIES, FRAMINGHAM, MASSACHUSETTS
Mr. Jacobson. Good Morning. My name is Mark Jacobson.
Chairman Houghton. Pull that just a little closer to you--
the mike--will you?
Mr. Jacobson. How is that?
Chairman Houghton. Fine.
Mr. Jacobson. I am here today in my capacity as the vice
president of corporate human services for the TJX Companies. We
are in Framingham, Massachusetts.
TJX is a leading national and worldwide off-price retailer
of apparel and home fashions. I hope that you know us across
the United States under the name of T.J. Maxx stores, Marshalls
stores, regionally as HomeGoods, and our newest business that
we are optimistic about, A.J. Wright. We are in 47 States. We
have seven distributions centers scattered across the Nation.
We have nine regional offices. We employ approximately 65,000
associates.
I am here today in support of H.R. 2101, the Work
Opportunity Tax Credit Reform and Improvement Act of 1999,
which the Chairman and Mr. Rangel have introduced. We are
especially appreciative that H.R. 2101 would make the Work
Opportunity and Welfare-to-Work Tax Credit programs permanent.
This would bring a desperately needed continuity to the
program, and allow us to dedicate additional resources for
Welfare-to-Work efforts.
Two years ago, our chief executive officer, Ben Cammarata,
pledged to the President that TJX would hire 5,000 welfare
recipients. As soon as we heard that number, we were terrified
because we wondered how we were going to do that. We set our
goal to do that by the end of the Year 2000.
I am proud to announce that we have not only met our goal,
but we have exceeded it. With the assistance of the hiring tax
incentives, in just over 2 years' time we have hired more than
9,700 individuals who were previously on public assistance.
During these past 2 years, we at TJX have learned what everyone
else in the country who has participated in this national
Welfare-to-Work initiative has come to understand: most of the
individuals coming off of welfare really want to work. Even
more importantly, they do become productive and prized
employees.
Our experience tells us that those on welfare face numerous
barriers to succeeding in the workplace. All of these
challenges have real costs associated with them. In our
corporate environment, we have to offset those costs. The way
that we do that is partially through the Work Opportunity and
Welfare-to-Work Tax Credits. This has made it economically
feasible for us to devote the resources and the creativity to
try to address some of the challenging problems that make it
difficult for us to be successful.
Early on in our efforts, we realized that if we were to
achieve our goal of hiring 5,000 welfare recipients, even with
the help of hiring tax incentives, we could not just sit back
and wait for those eligible to come to us. Rather, we had to
establish a corporate hiring policy, and impress on each of our
store and hiring managers that this was not only something that
we wanted them to do--that we thought was good for the company
and good for the country, but that we expected them to do it.
This required a significant corporate-wide effort to
communicate our new hiring policy, to incorporate into every
job application the pre-screening form, and, of course, to
train our hiring managers on how to assist job applicants in
filing out the pre-screening form.
In addition, to help ensure that we have a sufficient
number of qualified welfare job applicants, TJX utilizes an
extensive outreach program. This entails the use of an
employment hotline, through which local service providers are
alerted to our job openings.
There are several keys to TJX's success. We establish
strong relationships with service providers across the country.
We match new hires with experienced associates to help
alleviate some of the pressure of entering, or reentering the
work force. TJX reinforces the benefits of the program through
conferences and newsletters with other employers and with our
own associates. We have aggressively tried to spread the word
to other employers, predominantly in Massachusetts, but also in
other locations where we have a major presence. Finally, we
continually work to improve our Welfare-to-Work involvement.
I want to use this opportunity to compliment this Committee
on one aspect of welfare reform that has, for the first time,
made the types of outreach programs we engage in a real
success. Up until welfare reform, community-based organizations
were provided funds to train people, but never to place them.
For the first time, TANF provided resources to actively place
welfare recipients. As a result, community-based organizations
have become active partners of the private sector, and now
serve as excellent job application referral resources.
I also want to take this opportunity to raise two problems
with the program not addressed presently in H.R. 2101. First is
that while the vast majority of States are doing a terrific job
administering the program, in some of the States there are
significant processing backlogs. The second issue is that the
program is overwhelmingly slanted in favor of hiring women. In
our job applicant pool we see many young men seeking to work
who are over 18, that come from families who are on welfare or
food stamps. Yet we rarely seem to be able to qualify them for
the program. It is our hope that the committee will be able to
address this problem.
Let me conclude by saying we consider WOTC essential to
helping offset the cost of hiring welfare recipients, and
helping them advance in their jobs and in their careers. Thank
you, Mr. Chairman and Committee Members, for addressing this
issue today.
[The prepared statement follows:]
Statement of Mark Jacobson, Vice President, Corporate Human Services,
TJX Companies, Framingham, Massachusetts
Good morning, my name is Mark Jacobson and I am here today
in my capacity as Vice President of Corporate Human Services
for The TJX Companies, Framingham, Massachusetts. TJX is the
leading national and worldwide off-price retailer of apparel
and home fashions. In the U.S., TJX operates T.J. Maxx,
Marshalls, HomeGoods, and A.J. Wright with 60,000 employees and
1120 stores in the United States.
I am here today to support H.R. 2101, the Work Opportunity
Tax Credit Reform and Improvement Act of 1999, which the
Chairman and Mr. Rangel have introduced along with 22 of their
Ways and Means colleagues. We are especially appreciative that
H.R. 2101 would make the Work Opportunity and Welfare to Work
Tax Credit programs permanent. This would help to bring
continuity to the program and allow us to dedicate added
resources to our welfare-to-work efforts.
Two years ago, our CEO, Ben Cammarata pledged to President
Clinton that TJX would hire 5,000 welfare recipients by the
year 2000. Today, I am proud to announce that TJX has not only
met that goal--we have exceeded it.
In just two years time, we have hired more than 9,700
individuals who were previously on welfare. During these past
two years, we at TJX have learned what everyone else in the
country who is participating in the national welfare-to-work
initiative has come to understand--many of the individuals
coming off of welfare want to work. And even more importantly,
they can become productive and prized employees.
Our experience tells us that those on welfare face numerous
barriers to succeeding in the workplace. These barriers range
from low self-esteem to the lack of basic work skills such as
how to dress and how to appropriately interact with the public.
There are many obstacles to success in the workplace. All
of these challenges have real costs associated with them and,
in the corporate world, these costs have to be offset. The way
we do that is through the Work Opportunity and Welfare to Work
Tax Credits which have made it economically feasible for us to
devote the resources to our welfare to work effort.
Early on in our efforts, we realized that if we were to
achieve our goal of hiring 5,000 welfare recipients, even with
the help of hiring tax incentives, we could not just sit back
and wait for those eligible to come to us. Rather, we had to
establish a corporate hiring policy AND impress on each of our
store and hiring managers that this was not only something that
we wanted them to do, but that we expected them to do.
This required a significant corporate-wide effort to:
communicate our new hiring policy;
incorporate in every job application the pre-
screening form; and
train our hiring managers on how to assist job
applicants in filling out the pre-screening form.
In addition, to help ensure that we have a sufficient
number of qualified welfare job applicants, TJX utilizes an
extensive outreach program. This entails the use of an
employment hotline that store managers call when entry-level
positions are available. Through this hotline, local service
providers are alerted to job openings. These service providers
then alert those eligible that a position exists; what special
skills, if any, are required; and how much the job is paying.
There are several keys to TJX's success:
We establish strong relationships with service
providers because these providers will ensure that individuals
receive help with child care and other issues that arise as
people make the transition from welfare to work.
TJX matches new hires with experienced associates
to help alleviate some of the pressure of entering or re-
entering the workforce. This ``buddy'' system helps to ensure
that former welfare recipients are not intimidated by their new
responsibilities.
TJX reinforces the benefits of the program through
conferences and newsletters with store managers.
Finally, TJX is continually working to improve its
welfare to work involvement. For example, we have conducted
focus groups with associates formerly on welfare, to learn how
to better ease the transition.
I want to take this opportunity to compliment the Committee
on one aspect of welfare reform that has for the first time
made the types of outreach programs we engage in a real
success. Up until welfare reform, community-based organizations
were provided funds to train people, but never to place them.
For the first time, TANF provided resources to actively place
welfare recipients. As a result, community-based organizations
have become active partners with the private sector and now
serve as excellent job applicant referral resources.
I also want to thank the Committee, especially Chairman
Archer for his press release in which he stated that the
extenders, including WOTC, would be extended retroactively this
year. As a result, we at TJX will continue to participate in
our Welfare-to-Work program. While this does provide us with a
short-term reassurance, we are forced to continually reassess
whether we can incur the added costs involved in actively
participating in our extensive Welfare-to-Work initiative. This
concern is only increased as the flow of certifications on new
hires ceases during the program hiatus.
I also wanted to take this opportunity to raise two
problems with the program not addressed in H.R. 2101. The first
is that while the vast majority of states are doing a terrific
job administering the program, in some states there are
significant processing backlogs. The second issue is that the
program is overwhelmingly slanted in favor of hiring women. In
our job applicant pool, we see many young men seeking work who
are over 18 and come from families that are on welfare or food
stamps. Yet, we rarely seem to be able to qualify them for the
program. I hope the Committee will be able to address these
problems.
I want to thank the Committee for addressing this issue
today. We consider WOTC to be essential to offsetting the costs
of hiring welfare recipients and helping them advance in their
jobs and careers.
Chairman Houghton. Thank you, Mr. Jacobson.
Mr. Kramer.
STATEMENT OF FRED KRAMER, DIRECTOR, COMMUNITY EMPLOYMENT AND
TRAINING, MARRIOTT INTERNATIONAL, ON BEHALF OF JOB
OPPORTUNITIES BUSINESS SYMPOSIUM (JOBS)
Mr. Kramer. Thank you, Mr. Chairman and Members of the
Subcommittee. My name is Fred Kramer. I am the director of
Community Employment and Training Programs for Marriott
International. I am also testifying on behalf of the Job
Opportunities Business Symposium, a coalition of major
employers who use the Work Opportunity and Welfare-to-Work Tax
Credits.
My company is in enthusiastic support of the WOTC and
Welfare-to-Work Tax Credits for a very simple reason: they do
what they are supposed to do; namely, to persuade employers
like Marriott to find, hire, train, and retain public
assistance recipients. My company has a proud history of
corporate citizenship. With or without hiring tax credits, I
think it is fair to say that we would do our part to help those
less fortunate. We might even have a modest program to help
welfare recipients. But WOTC changes the dynamics greatly. The
tax credits allow us to be far more aggressive in reaching out
to this population.
Make no mistake about it, hiring from the world of public
assistance recipients, and other socially at-risk persons is
expensive. It requires enormous amounts of time and effort.
People with poor job skills and no work experience have little
to offer an employer. Such persons usually have low self-
esteem, and they expect to fail. It is a huge challenge to
break that cycle.
We have even provided new employees with alarm clocks, to
teach them to use them and to explain why being on time is
important. We have to give our supervisors special training for
dealing with these workers. Our managers learn to cope with
transportation, child care, creditor, and other matters that
they normally would not have time for. They often must provide
new workers special attention.
As we teach job skills and the importance of dependability
to these new workers, we may get help from community-based
organizations which provide support services. We also have what
we call ``associate resource lines,'' which gives employees
access to trained professionals who can help them with the life
problems that so often interfere with job performance.
Mr. Chairman, we desperately want these persons to succeed,
to become part of the Marriott family, and to climb our
corporate ladder. We are proud of our success in developing
some very loyal employees who are excellent performers, who
will spend their careers at Marriott, or who will take the
Marriott-learned job skills and apply them productively
elsewhere. These successes are not just Marriott's; they are
yours, as well. Our success would not have occurred without
your tax credits, because success costs money.
Besides, for all of our successes, there are also costly
failures. Who pays these costs? Marriott does. That is why the
tax credits are so important. They don't offset all of our
costs, but they provide enough for us to continue what has
become a successful private-public partnership. But please
understand, without the credits our program would either shrink
dramatically, or disappear altogether.
As you decide how to best continue WOTC, let me make two
other points. First, I urge you to make the program permanent.
Every time there is a hiatus, the program suffers. Starting
today, States stop certifying new workers. Some States will
even stop certifying eligible workers who are already on the
job. Think about the message that sends. We did our part, but
we are being denied the tax credits we have earned. Even when
the program is renewed retroactively, our credits will be
delayed. In some cases, by 6 to 9 months, or even longer.
Fairly or not, this looks like a lack of commitment by the
Congress. It makes it that much harder for us to convince
management to stick with the program. If a permanent extension
is not possible, please give us at least 3 years. Let us show
you what we can do when we are not constantly in the start-stop
mode of operation.
We also urge you to find a way to improve the performance
of a handful of States who are not doing their job. Most States
do a good job, but a few fall short. We employers are short-
changed in the near term. Over time, we end up hiring fewer
welfare recipients. Poor performance by a few States is a
fixable problem, but it will require your active involvement.
Thank you for giving me the chance to share Marriott's
experience and views.
[The prepared statement follows:]
Statement of Fred G. Kramer, Director, Community Employment and
Training, Marriott International, on behalf of Job Opportunities
Business Symposium (JOBS)
Mr. Chairman, Members of the Subcommittee, I am Fred
Kramer, the Director of Community Employment and Training for
Marriott International. I am also testifying on behalf of the
Job Opportunities Business Symposium (JOBS), a coalition of
major employers who use the Work Opportunity and Welfare-to-
Work tax credits. My company is an enthusiastic supporter of
the WOTC and Welfare-to-Work tax credits for a very simple
reason--they do what they are supposed to do--namely, to
persuade employers like Marriott to find, hire, train and
retain public assistance recipients.
My company has a proud history of corporate citizenship.
With or without hiring tax credits, I think it is fair to say
that we would do our part to help those less fortunate. We
might even have a modest program to help welfare recipients.
But WOTC changes the dynamics greatly. The tax credits allow us
to be far more aggressive in reaching out to this population.
Make no mistake about it--hiring from the world of public
assistance recipients and other socially at-risk persons is
expensive. It requires enormous amounts of time and effort.
People with poor job skills and no work experience have little
to offer an employer. Such persons usually have low self-
esteem, and they expect to fail. It is a huge challenge to
break the cycle.
Often, we even provide the new employees alarm clocks,
teach them to use them, and explain why being on time is
important. We have to give our supervisors special training for
dealing with these workers. Our managers learn to cope with
transportation, child care, creditor, and other matters that
they wouldn't normally have time for. They often must provide
these new workers special attention.
As we teach job skills and the importance of dependability
to these new workers, we may get help from community-based
organizations which provide support services. We also have what
we call the ``Associate Resources Line,'' which gives employees
access to trained professionals who can help them with the life
problems that so often interfere with job performance.
Mr. Chairman, we desperately want these persons to succeed,
to become part of the Marriott family, and to climb our
corporate ladder. We are proud of our success in developing
some very loyal employees who are excellent performers, who
will spend their careers at Marriott, or who will take their
Marriott-learned job skills and apply them productively
elsewhere.
But these successes are not just Marriott's. They are yours
as well. Our success would not have occurred without your tax
credits, because success costs money. Besides, for all our
successes, there are also costly failures. Who pays these
costs? Marriott does. That is why the tax credits are so
important. They don't offset all our costs, but they provide
enough for us to continue what has become a successful public/
private partnership. But please understand--without the
credits, our program would either shrink dramatically, or
disappear altogether.
As you decide how best to continue WOTC, let me make two
other points: first, I urge you to make the program permanent.
Every time there is a hiatus, the program suffers. Starting
today, states stop certifying new workers. Some states will
even stop certifying eligible workers already on the job. Think
about the message that sends. We did our part, but we are being
denied the tax credits we earned. Even when the program is
renewed retroactively, our credits will be delayed--in some
cases by six to nine months, or even longer. Fairly or not,
this looks like a lack of commitment by the Congress, and it
makes it that much harder for us to convince management to
stick with the program. If a permanent extension is not
possible, please give us at least three years. Let us show you
what we can do when we are not constantly in this start/stop
mode of operation.
We also urge you to find a way to improve the performance
of a handful of states who are not doing their job. Most states
do a good job, but a few fall short. We employers are short-
changed in the near term, but over time, we end up hiring fewer
welfare recipients. Poor performance by a few states is a
fixable problem, but it will require your active involvement.
Thank you for giving me the chance to share Marriott's
experience and views.
Chairman Houghton. Thank you very much, Mr. Kramer.
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman.
Mr. Kramer, how well is Marriott doing relative to
retention periods after the credit is exhausted?
Mr. Kramer. I haven't done a study on retention periods
after credit, per se. We do have some localized Welfare-to-Work
training programs that we do some special training with. We
have a retention rate of 65 percent after 1 year of employment.
For the industry, the average of folks coming in off the street
and not getting extra training is about 50 percent. It is a
higher retention rate.
Mr. Coyne. But you don't have a records kept about the WOTC
employees?
Mr. Kramer. No.
Mr. Coyne. Why is that?
Mr. Kramer. I really haven't seen the need to do it, yet.
Mr. Coyne. Well, wouldn't it be helpful to know how many of
these employees continue on in the employment after the credit
period?
Mr. Kramer. As I have said, we do a kind of focus study on
a group that goes through a specific training program above and
beyond the WOTC program. That retention is 15 percent higher.
Mr. Coyne. Does your company, Mr. Jacobson, have any
retention records for employees?
Mr. Jacobson. We do. I don't know if I have the specific
answer that you are seeking. Let me tell you that we are very
concerned about retention in general. We have a high turnover
within our organization, and have had traditionally. Within the
Welfare-to-Work population, we have a much stronger retention
rate than we have with our normal statistic: 0.7 percent versus
1.1 percent.
We have hired someone to interview two thousand people who
left us, out of a population of 20,000, in a 12-month period.
Three-hundred-thirty-six of those were people that had come off
of the welfare rolls. What I don't know is whether all of those
qualified for the WOTC credit. I can't link it to that.
Mr. Coyne. Mr. Espinosa.
Mr. Espinosa. Yes, sir. In my written testimony that was
submitted to the committee, we only have data from 1994, which
was the last Office of Inspector General study that was done of
WOTC predecessor, TJTC. Clearly, there is no new study to
support whether or not churning or displacement is happening.
Maybe one of the things that the committee could suggest you
all do is perform an audit of the program. It is coming into
its third year now. Perhaps it would be time for one to be
done.
Mr. Coyne. So your position is that you are not against the
program. You would just like to have a little bit better record
keeping relative to retention.
Mr. Espinosa. Yes, sir. We are actually very much in
support of the program, however there are a few holdups. Those
happen to focus on the retention period after the individual
has exhausted their credit. Is this just something that gets
them a job for a short term, and then they are let off after
their WOTC experience expires? Or is it something where they
become loyal to the company, stay with the company, and
actually have a career ladder opportunity associated with the
employment opportunity?
Mr. Coyne. Mr. Signer.
Mr. Signer. Mr. Coyne, New York State has looked at this
issue. The way they did that is they looked at the unemployment
insurance rolls. What they found was that when people left the
job--and people do leave the job, and in many cases, they
leave, before they have earned the full $6,000--what is
happening is there is no break in their UI payments. This means
they are going on to another job.
The study also said that when they are moving, they are
going to a job that is paying at least a dollar more. So what
is happening with this program is that people are deciding to
get the entry-level training. They may work at a K-Mart or they
may work at a Wal-Mart. They get that experience. They become a
trained employee. They can take that experience and go
someplace else. A lot of them are staying with the employers
that they began with, at least the ones that are making it to
400 hours. So from that perspective, we feel the program is a
success, because they are staying within the job market and
getting higher-paying jobs.
Mr. Coyne. Thank you. Thank you.
Chairman Houghton. OK. Mr. Weller.
Mr. Weller. Thank you, Mr. Chairman. It is clear from the
testimony that has been given here there are two issues I see
emerging from the witnesses. No. 1, of course, is the
processing backlog in the States. Also, the temporary nature of
the tax credit and how it impacts the psychology of those who
would like to participate.
Mr. Signer, you seem to represent a group of employers that
participate with the backlogs in certain States. The
information I have is that there are 8 to 10 States where there
is significant processing backlogs. In those States where we
have that type of backlog, how does that impact the
participation in the program?
Mr. Signer. Well, the problem is that this program has to
work on local level. It has to work in a local store. What we
begin to see, and I think some of the other companies can talk
about that, is that it is harder to keep the local hiring
manager involved in the program. What he ends up saying is,
``Well, I don't want to go through the whole process of helping
the applicant fill out the job form if I am not going to get
the tax credits I feel I am entitled to because they are not
getting processed.''
That really has a cooling-off effect on the local hiring
managers. We are seeing that in those 8 to 10 States. In other
States it is working great. The employers are participating.
They are very happy with it.
Mr. Weller. Mr. Balfour, what do you suggest be done in
those States to correct backlog?
Mr. Balfour. Well, in some of these States that I have been
to, and talked to their Governor's offices and different people
about the situation, the most important thing is to make the
program more like a permanent program--a 2- or 3-year
extension.
I know personally, in Georgia the problem we had a number
of years ago, we had an 18-month hiatus. The Governor did what
was appropriate which was to take those employees and put them
into a job that needed to be done in the State. When the
program finally came back, there was no one with any history of
what needed to be done. So they were starting from scratch.
On our unit manager side, you are giving us an incentive to
hire economically disadvantaged people. We, as a company, pass
that credit right back down to the unit manager, because he is
the one doing the hiring. When he goes through all this work
process and the State doesn't do anything, he finally gives up
on the program. He says, ``I am not going to do that anymore. I
not going to reach out and try to do this, that, and the other,
because I am not going to get any credit on my P&L, anyhow.''
Back to your question. There are a couple of things that
need to happen. One is the temporary nature needs to go away.
When that happens, you will have more people that are there on
a regular basis.
Someone else mentioned in one of the other panels--and
correctly so--it needs to be more automated. North Carolina has
done a great job of automating. Georgia has done a great job of
automating. When you get this automated to a point that they
are not having to go to the different departments inside the
State Government to get the information, they are pulling it
right up on their computer screens. When they can do that, it
is less people that have to run the program. It is more
consistent.
Mr. Weller. Mr. Kramer, Mr. Jacobson, do you have anything
you would like to add?
Mr. Kramer. We are in a similar situation where we really
try to encourage our unit operation managers to take part in
the program. In some cases we actually do directly incent them
to follow through with the necessary paperwork, and the
additional training for the WOTC-eligible individuals. We do
promise them tax credits for their operation and they don't
come through. That does cause some frustration, definitely.
Mr. Weller. Mr. Jacobson.
Mr. Jacobson. The only thing I would add is that the
population that remains to be served--to be brought into the
work force--is going to be even more difficult than what we
have already accomplished. Anything we can do to overcome some
of the impediments that discourage those who want to use the
opportunity to step away from the program is a plus. Even
though as committed as we are, we still have naysayers within
the organization.
Mr. Weller. Just to follow up on that on the impact whether
an employer would want to participate--in the Administration's
budget, they propose a user fee when a employer is applying to
be certified to participate. If that user fee is adopted, what
would be the impact on employers who may be considering
participating? Mr. Signer?
Mr. Signer. Mr. Weller, we have looked at this. One of the
biggest concerns that has been expressed to us is that small
businesses are not participating at a level that people would
like to see. As a group, NEON has tried to work with the
Welfare-to-Work partnership, offering free services to small
businesses who are a member of the partnership.
What we see is that small businesses clearly are not going
to pay money up front. Probably, at least 50 percent of those
people who you hire and think are eligible are not going to get
certified. So whatever the charge is, the cost is doubled. A
lot of those people will not even make it to the threshold of
120 hours. A lot of them will move on to another job.
Twenty million dollars is what is being appropriated now.
If you calculate that out based upon the number of people who
are using the program, which is about 320,000 at this point in
WOTC, it could be anywhere from $40 per certification. This is
going to be very costly. For a company like Marriott, they
would have to pay money up front for thousands and thousands of
workers. It is just going to discourage people from
participating.
Mr. Weller. Mr. Espinosa, do you have any comments on that?
Mr. Espinosa. We have had studies in the past that have
shown that the majority of the employers would have hired these
individuals regardless of the credit. The additional costs that
many of the employers are speaking to aren't necessarily the
ones brought upon them. Really, it is the costs that are
associated with the intermediaries, the management assistance
companies, that are really playing the brokering role between
the employer and the Department of Labor in this whole process.
Clearly, those are the folks who are bearing the burden of the
costs.
Employers who are seeking to employ these populations would
have incurred those costs naturally, without the credit, if
they so wanted those employees. So in terms of additional
costs, it is an issue that is underlying. But to what extent
are those costs real? That is something that we just don't
know. There is no information that is collected to let us
determine whether or not the costs are excessive enough that
the credit is no longer providing the benefit that it is
intended to provide.
Mr. Weller. Mr. Chairman, I see my time has expired. Thank
you.
Chairman Houghton. OK, thank you. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. I appreciate all the
testimony. I feel very strongly that this ought to be a
seamless program. I think it is unfortunate that we get into a
situation as we are in today, where States around the country
are being told that this is not being extended. They are
slowing down. Businesses are slowing down. We end up with
dislocation that is unnecessary. I think there is an
understanding that we will extend the tax credit for another
year.
Mr. Chairman, there are a lot of ways to look at this. This
is not an issue that is before the Subcommittee today, but we
have to figure out a way to make it seamless so that the
program can operate with certainty.
I had some concerns about the targeted jobs tax credit. I
was not a big fan of it. I didn't think it was working well. I
thought it was corporate welfare to a certain extent.
Businesses would have hired the folks anyway. It was a
windfall.
I think this program is a lot better. But it is just
unfortunate for us not to have it continue year after year.
Maybe it should be 2 years, and we should extend the year prior
to its expiration.
I also feel that we need to have better measurements of
success. That is one of the arguments, as you know, for having
the annual process we are going through now. The main reason
for it is revenue--just so everybody understands that. This is
not a policy reason. It is because we don't want to put as much
revenue loss into our tax bills, because we have other needs
out there for tax relief. But there is, I guess, some good that
comes out of this, which is, annually we have to go through
this process of taking a look at it.
What I would ask the members of this panel is whether you
disagree with what Mr. Espinosa said, which is, we ought to be
devoting more time toward measuring our success, particularly
looking at whether there is, indeed, the kind of retention--as
compared to retention generally?
In this job market, retention at companies represented here
is not going to be something that anybody is particularly proud
of. People are moving quickly. There is a lot more mobility.
There will be even more in the next century, according to the
Labor Department projections.
But do you have any concerns about what Mr. Espinosa laid
out in his testimony, or response to his questions?
Mr. Balfour. From what I heard of his testimony, most of
the data that was talked about was under the old TJTC program,
not under the new WOTC program. It has a lot of restrictions
and changes that were placed in the program by the chairman's
wisdom, and others that were on the committee at the time.
The theory that we are out churning employees is nuts. It
is totally nuts. I am not going to keep an employee for a year
if they are a terrible employee, just because of WOTC. If they
are a terrible employee, I am going to fire them. The opposite
is also true. When the year runs out, if I have employed them
and they have been a good employee for that year, to say that
my management would fire them and then go out and hire someone
else and retrain to get the credit is nuts.
Mr. Portman. As a result of the costs incurred in training
somebody?
Mr. Balfour. No. Forget about the costs. You have a good
employee. If you have a good employee, you are going to keep
that employee.
The neat thing about the WOTC program is that it gives an
incentive to my unit manager. He has to hire someone and there
are five people sitting there. One person is WOTC-qualified. It
gives him an incentive to say, ``Well, maybe I ought to give
this guy a chance.'' Then once my management hires them, they
give credits for longevity for keeping him, and so forth. The
longer they stay, the more money that unit manager can make.
But at the end of the year when there is no more WOTC
credit, the idea that anyone in business is firing them to make
another $3,000 by hiring someone else that they don't know is
going to stay 120 days where they might get any money at all,
or may stay 3 months, then quit--is nuts. I would like to see
one example. If you give me one line of example at Waffle
House, I will fire the unit manager. He is the most ridiculous
unit manager that was ever in the world. You would never do
this in the business.
Mr. Portman. Let me follow up on that. We don't have the
data. Are you saying that it isn't important to find out
whether that is happening around the country? This is a
significant tax expenditure. It is an incentive. We don't know
the answer to that.
Now churning is kind of a pejorative term. Let us just talk
about retention.
Mr. Balfour. OK. Well, you saw some numbers here. I can
show you the numbers of Waffle House of how long they have
stayed for that year. For that year, is how long we have the
tax credit for.
But the other question, I don't know how you would get to
it. You would have to interview different people. It isn't
whether they have stayed a year, or they stayed 5 years. If
they left in a year, did they go to a better-paying job? Did
they improve?
Mr. Portman. The point that Mr. Signer made is that some of
these folks are getting into the work force, maybe for the
first time. They are coming in at an entry-level. They do well
enough that they have other opportunities at another dollar or
two an hour. They leave. There is nothing wrong with that.
That, in fact, is one of the reasons we have this tax credit.
It is to get people into the work force and into meaningful
jobs. That should be taken into account, clearly.
Mr. Balfour. I am not sure how you do it. You can look at
the mathematics. I could probably run to my computer department
and run the mathematics of how long someone qualified for WOTC
stays, even for a longer period of time. But I can't tell you
what they did afterwards.
What I can tell you from the specifics I know that I don't
like is the guy at T.J. Maxx that ends up hiring him for a
dollar more than I paid him. I don't like that because he hired
him. But he hired him because he had some job skills that I
trained him with that you help incentivize me to give him that
first job.
Mr. Portman. You talked about the five people sitting on
the bench. The unit manager goes out and makes a decision,
partly based on WOTC.
Mr. Signer, in his testimony, implied--at least I infer
from what you said--that the costs associated with WOTC exceed
those that are covered by the tax credit. In other words, of
those five people, I think what you were saying--correct me if
I am wrong--is that there really wasn't an incentive to pick
the WOTC person, because the costs associated with that were
greater than the tax credit. As compared to the other four, is
that true as well? Do you see what I am getting at?
Mr. Signer. I think the answer to that is that what this is
designed to do and what it does do is not offset all the costs
involved in hiring somebody. It is designed to level the
playing field. Say that you have five people on the bench. The
welfare person is probably not going to be picked without
something to help level the playing field. They don't have the
job skills. They don't have the experience. What this does is
that it brings them up to the same level. All things being
equal, you will pick the welfare recipient.
Mr. Portman. Now Mr. Kramer and Mr. Jacobson, do you agree
with that on a general level?
Mr. Jacobson. I do.
Mr. Kramer. Yes, I definitely agree with that. Depending on
the individual, and how much extra training and extra support
they need, if you count on mentoring, and managers and
supervisors spending extra time as well, the cost in manhours
often exceeds the amount of tax credit we will get.
Mr. Portman. I have other questions, but I have already
exceeded my time. Thanks for the indulgence, Mr. Chairman.
Chairman Houghton. Well I just have one final question.
Anybody can answer it. Obviously your businesses--the quick
service and retail industries--absorb a great many of these
people we have been talking about.
There is a head of steam on a minimum wage increase. I
would assume that nobody has any objection to coupling this, if
the minimum wage comes along, with that. Anything we can do to
help the small business people offset what that additional cost
is. How do you feel about that?
Mr. Balfour. Mr. Chairman, many of our industries that are
getting the WOTC credit were probably the industries that are
going to be hit hardest by a minimum wage increase. Coupling
WOTC permanent extension with a permanent increase in minimum
wage, I think, would be advisable. It would be something that
we would hope would happen.
Chairman Houghton. Right. Anybody else have a comment on
that?
Mr. Espinosa. Mr. Chairman, we would also support the
marriage of those two programs. But given that we provide a
little extra focus to the WOTC, particularly on the back end of
the program that focuses on retention. Just so we can at least
put to bed the notion that if there is churning going on, let
us find out if it is actually going on. Let us find out if
displacement is deliberately going on.
Mr. Signer. Mr. Chairman, we have no position on the
minimum wage issue. We just would like to point out that for
every dollar you increase it, WOTC offsets 40 percent of it.
Chairman Houghton. Anybody else?
Mr. Jacobson. We don't have a corporate position on that.
Chairman Houghton. Just one other comment. You know we talk
about a seamless program. Clearly, I think all of us would like
to see at least a 2-year, and at best a permanent extension. I
think your point is right. If you have a permanent extension of
minimum wage, you have to have a permanent extension on
something like this. But there is a retroactivity clause in
here, assuming this thing goes through--which I think it will.
Thank you very much. I certainly appreciate your time and
your patience. We will see you again soon.
[Whereupon, at 12:40 p.m., the hearing was adjourned.]
[Submissions for the record follows:]
Food Marketing Institute
June 30, 1999
The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
House Ways and Means Committee
Washington, D.C. 20515
Dear Chairman Houghton:
On behalf of the Food Marketing Institute, your neighborhood
supermarkets, I submit this statement as part of the hearing record for
the July 1 Subcommittee on Oversight hearing regarding extension of the
Work Opportunities Tax Credit (WOTC) and the Welfare-to-Work (WWTC) tax
credit.
We strongly support legislation making the credits permanent and
retroactive to July 1, 1999. For the labor-intensive food retailing
industry, the WOTC has helped integrate economically disadvantaged
Americans into the national work force and often in grocery stores
within their own neighborhoods. Our industry believes these credits are
an effective approach for encouraging private sector employers to hire
individuals from groups that otherwise would have difficultv securing
employment in either good or bad economic times.
We also support the improvements to the programs proposed in H.R.
2101, authored by you and Rep. Charles Rangel to consolidate the WOTC
with the WWTC. With more individuals entering the workforce from
welfare, our neighborhood supermarkets are increasingly training and
hiring those who are less skilled and more costly to train.
Supermarkets play an important role in creating and maintaining
strong neighborhoods. Our members are significant employers in many
inner city and rural communities across America. They provide basic
products and services essential to life and health. They are places
where neighbors gather and interact in productive ways. Many young
people find their first job in a supermarket. They provide flexible
work schedules, with many stores open 24 hours a day, 365 days a year.
These characteristics provide supermarkets with the unique opportunity
to play a leadership role in developing programs to address the social
and economic challenges of the neighborhoods and communities they
serve.
The WOTC program has provided incentives for employers to take a
risk they might not normally have taken. For employees, it has taught
skills, helped to develop good work habits, established independence,
created a positive job profile and helped with employment history. New
hires have started as cashiers, baggers, deli, grocery or produce
clerks and over time remain with the store, gaining experience and
receiving important benefits, such as health care coverage.
Since WOTC was first enacted in 1996 on an experimental basis, with
WWTC following a year later, hundreds of thousands of welfare
recipients have moved into the productive work force. The credits
offset a portion of the higher costs of recruiting, hiring, training
and supervising those with few job skills and little or no work
experience. Unfortunately, the 1-year extensions granted in the past 2
years have limited the program's effectiveness. Last year's 3\1/2\-
month hiatus prompted some companies to stop participating, while
others reduced their hiring efforts. Also, if the minimum wage is
increased, there will be less of an incentive to hire the hardest-core
unemployed.
By making these credits a permanent part of the tax code, companies
will have a longer planning horizon, better outreach to eligible
workers and the ability to develop more cost effective recruitment and
training programs. Thank you for considering FMI's views.
Sincerely,
John J. Motley III
Senior Vice President
Government and Public Affairs
Statement of International Mass Retail Association, Arlington, VA
The International Mass Retail Association (``IMRA'') is an
organization whose members include the fastest growing
retailers in the world--discount department stores, home
centers, category dominant specialty discounters, catalogue
showrooms, dollar stores, warehouse clubs, deep discount
drugstores and off-price stores--and the suppliers who supply
them with merchandise and services. IMRA retail members operate
more than 106,000 American stores and employ millions of
workers. One in every ten Americans works in the mass retail
industry, and IMRA retail members represent over $411 billion
in annual sales.
IMRA strongly supports Congressional efforts to extend the
work opportunity tax credit (``WOTC''), which expired only
yesterday. In particular, IMRA supports the bill introduced by
House Ways and Means Oversight Subcommittee chairman Amo
Houghton (H.R. 2101) that would modify and permanently extend
the program.
WOTC gives employers a tax incentive to hire and invest in
the training of individuals who have traditionally had
difficulty entering and remaining in the work force. WOTC does
not provide a windfall to employers to hire employees that they
would have hired anyway. Rather, WOTC provides employers with
an incentive to bear the costs of training public assistance
recipients and other hard-to-employ individuals and provides
these individuals with job-related skills that give them a
chance to gain a foothold in the job market. This is the goal
of WOTC, and IMRA member companies have historically played a
large and important role by employing and training these
targeted individuals in achieving this, the goal of WOTC.
In order to better achieve the full potential of WOTC, the
program should be made permanent, or at least be given a
longer-term extension. Short-term extensions of WOTC greatly
limit the program's effectiveness.
With the passage of the Small Business Job Protection Act
of 1996 (P.L. 104-188), Congress designed a WOTC program with
which employers can work. Unfortunately, since the inception of
the program, employers have never been assured that WOTC would
last for more than 1 year. The program was initially set up to
last only 12 months, until September 30, 1997. The Taxpayer
Relief Act of 1997 re-authorized the program for just 9 months,
through June 30, 1998. The most recent extension expired only
yesterday, June 30, 1999.
Short extensions of WOTC underestimate the considerable
time, effort, and resources that companies must expend to
identify, recruit, and train targeted workers and provide
outreach to communities or work-related assistance such as
childcare and transportation for those individuals. If
employers were assured that the credit would be available for
more than just 1 year, they could better justify the costs of
recruiting and training public assistance recipients and other
hard-to-employ individuals.
Too often in the past, when WOTC and its predecessor, the
targeted jobs tax credit, have expired and have later been
extended retroactively, administrative problems have arisen due
to the lack of continuity in the program. For example,
difficulties have taken place with getting some State
employment security agencies to certify as members of a WOTC
target group new employees hired during the interim period.
Extending the program for a number of years or, better yet,
making it permanent would eliminate such administrative and
wholly unnecessary headaches.
While it was certainly welcome, the statement by Ways and
Means Committee Chairman Archer and Finance Committee Chairman
Roth that expiring tax provisions will be extended with an
effective date of July 1, 1999 in the reconciliation bill due
to be reported by the tax-writing committees in July does not
guarantee extension of WOTC and does not allow companies to
operate as if WOTC had been extended.
For WOTC to achieve its full potential and become an
effective program for encouraging businesses to help move
targeted individuals off of public assistance, businesses must
have a greater degree of certainty that the program will
continue, and will continue for a long enough time to make the
administrative costs worthwhile.
IMRA is grateful to Chairman Houghton for convening today's
hearing on this important issue and for recognizing that the
significant and laudable goals of WOTC can best be achieved by
making the tax credit permanent.