[Congressional Record Volume 143, Number 124 (Wednesday, September 17, 1997)]
[Extensions of Remarks]
[Pages E1772-E1773]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               DISPLACED OLDER WORKERS DESERVE TAX RELIEF

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                       HON. CHRISTOPHER H. SMITH

                             of new jersey

                    in the house of representatives

                     Wednesday, September 17, 1997

  Mr. SMITH of New Jersey. Mr. Speaker, when large companies merge or 
downsize, it is often the older workers and long-time employees that 
bear the brunt of the job insecurity and downsizing that follows. When 
the corporate cost-cutters start scouring each department for cost 
savings, the most experienced workers often feel as though they have a 
bulls eye on their chest.
  While every lay-off is a painful and unpleasant experience, older 
workers often find themselves in a unique ``catch-22'' situation: they 
are to young to comfortably retire, and too old for most companies to 
retrain. Many firms are understandably hesitant to retrain displaced 
older workers because the company may fear it will not be able to 
recoup their investment before the worker retires.
  Yet clearly, in this global economy, displaced older workers in 
labor-intensive and ``smokestack'' industries negatively affected by 
trade agreements need to be retrained for jobs in other economic 
sectors. For example, when layoffs are concentrated in a particular 
industry, such as the defense industry, displaced older workers with 
specialized skills and knowledge have a difficult time finding 
comparable employment without retraining because the demand for their 
existing skills is low.
  Mr. Speaker, data I have obtained from the Bureau of Labor Statistics 
[BLS] confirms what most Americans already know--older, displaced 
workers face very difficult challenges when seeking new employment.
  For instance, in comparison with younger workers, older workers, 
those age 50 and above, have a higher unemployment rate--17 percent 
versus 12 percent--drop out of the labor force at higher rates after a 
lay-off--39 percent vs. 10 percent--suffer a longer period of 
unemployment between jobs--27.3 median weeks vs. 11.6 median weeks--and 
on average, take a 29.6 percent pay-cut in their median weekly earnings 
after they do finally secure a new job.
  The current Tax Code compounds the problem by including severance 
payments made in connection with a lay-off or work force reduction as 
taxable income, even though this income is nonrecurring. This makes a 
displaced worker look suddenly wealthy on paper, pushing their family 
into a higher tax bracket. As a result, the current Tax Code actually 
taxes the severance payments of the most senior workers in a firm at 
the highest marginal rate, since the value of a severance package is 
usually derived from one's length of service to the firm.
  Here is where the Tax Code is at its most heartless to displaced 
older workers, since those having the most difficult time finding 
another job are simultaneously being hit with the highest taxes on the 
severance payments they receive.
  Mr. Speaker, to remedy this unfairness, and to provide a measure of 
assistance for older workers facing a particularly difficult situation, 
I am introducing the Career Transition Assistance Act of 1997, which 
will provide much needed tax relief in two critical areas.

[[Page E1773]]

  First, my bill will allow employees who are offered severance pay 
packages by their employers to exclude the first $15,000 from their 
taxable income. No longer will the Tax Code punish displaced workers by 
taxing their misfortune. This income exclusion could be taken by the 
employee regardless of whether the reduction in force was voluntary or 
involuntary
  In addition, if an employer's severance benefit provides for payments 
for up to 3 years from the date of separation, my legislation would 
allow the employee the flexibility to elect to exclude all or some of 
the severance payment from their income for the 3 year period, up to 
the $15,000 limit.
  Second, the legislation will provide a $2,000 refundable tax credit 
for retraining expenses incurred after a lay-off. This tax credit is in 
keeping with the common-sense principle that families and individuals 
know their retraining needs better than government-run retraining 
programs.
  To ensure that this tax relief is available to middle class families, 
jointly filing couples with incomes of up to $100,000, and single 
persons with incomes up to $75,000, would qualify under my legislation 
for the full $2,000 tax credit. The value of the credit is gradually 
phased out for persons earning higher amounts.
  While I believe Congress should continue to reform and reduce red-
tape in our Nation's patch-work of retraining programs, it is important 
to protect workers from slipping through the cracks of these programs' 
widely varying eligibility criteria.
  This legislation will go a long way toward improving the efficiency 
of our Nation's labor markets, and I call on Members on both sides of 
the aisle to lend their support for this effort. Severance payments are 
designed to provide a financial cushion to help pad the blow of a work 
force reduction. When the Tax Code adds insult to injury by subjecting 
these families to a higher tax liability, it is clearly time to correct 
this insidious consequence.

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