[Congressional Record (Bound Edition), Volume 147 (2001), Part 13]
[Extensions of Remarks]
[Pages 18415-18416]
[From the U.S. Government Publishing Office, www.gpo.gov]



           THE DISPLACED OLDER WORKER ASSISTANCE ACT OF 2001

                                 ______
                                 

                       HON. CHRISTOPHER H. SMITH

                             of new jersey

                    in the house of representatives

                        Tuesday, October 2, 2001

  Mr. SMITH of New Jersey. Mr. Speaker, today I am introducing 
legislation to provide targeted tax relief to all workers who are laid 
off and who receive severance benefits, and to grant re-training 
assistance to older workers who often have special difficulties when 
trying to find new employment after a lay-off.
  My legislation would allow all workers, of any age, to exclude up to 
$15,000 from their taxable income for severance pay, effective after 
the date of enactment.
  This legislation is based on the common-sense principle that having 
one's employment terminated is painful enough for a family to deal 
with. Clearly, the federal government should not make matters worse by 
levying additional taxes on non-recurring severance payments.
  Severance benefits often create the impression of affluence on paper, 
and when they are counted as ordinary income (as is the case under 
current law). The payments boost family incomes into higher tax 
brackets, and result in higher tax liability. In many cases, a sizeable 
portion of the severance benefit is lost to the I.R.S. in the form of 
higher taxes.
  This glitch in our tax code was brought to my attention several years 
ago by a constituent of mine, Mr. Bill Giovennetti of Hamilton, when he 
told me that he lost thousands of dollars of his severance benefits 
when he was forced to take early retirement in the early 1990s, as his 
company was downsizing. Because he was a long-time employee, his 
severance benefit was fairly significant, and it put him into a higher 
tax bracket. He protested this taxation to the I.R.S., thinking 
initially that it was some kind of mistake. Common sense would suggest 
that the I.R.S. would not want to kick a man when he's down on his luck 
and out of a job by hiking his taxes and taking away part of his 
severance package. When he

[[Page 18416]]

got the letters back from the I.R.S. telling him that severance pay is 
included and taxed as regular income, he couldn't believe it.
  His case is not the first, nor will it be the last, unless this 
legislation becomes law.
  Current law on taxing severance pay has no policy justification. 
Severance pay is not recurring income. Including it as income distorts 
a person's true financial situation and makes them appear more wealthy. 
However, the fact of the matter is that the family's actual financial 
situation has been weakened by the impending lay-off. The non-recurring 
nature of severance payments is not recognized by our tax code, and in 
effect, current law is harshest on those workers who put in the longest 
years of service to their employer. People should not suffer a tax 
penalty merely because they have been loyal, longstanding employees, 
and my legislation provides necessary and needed tax relief to middle 
class families.
  The exclusion can be taken either in the year the severance payment 
is received, or in one of the next two succeeding taxable years. I have 
capped the exclusion at $15,000, to ensure that taxpayers are helping 
those who really need our assistance, not padding the ``golden 
parachute'' bonuses of CEOs.
  Mr. Speaker, since the horrible events of September 11, literally 
tens of thousands of workers--particularly those in the airline, 
travel, and tourism industries--have been laid off. Over 100,000 lay 
offs are anticipated in the airline industry alone when all is said and 
done. Our economy has taken a body blow, and we will need to provide 
our laid-off workers all the help we can give so that they can land on 
their feet.
  Severance payments are more than just a reward for service. Severance 
benefits often are used by laid-off workers as seed capital to start 
their own businesses. They are used for retraining purposes, such as 
tuition or fees for specialized training programs. Taxing these 
benefits is like throwing an anchor to a drowning swimmer. Instead of 
being a tax albatross, severance payments should be a lifeline that 
unemployed workers can rely upon when trying to find another job.
  Not all workers who are laid off find it easy to get another job that 
pays wages similar to their last job. In fact, older workers--
especially those over the age of 50--often experience major 
difficulties. To address this problem, my legislation provides a $2,000 
targeted refundable tax credit for displaced older workers to help them 
with retraining expenses.
  Workers over age 50 usually have spent most (or all) of their careers 
at the same firm, and often experience difficulties finding new 
employment after suffering a lay off. This is the result of a number of 
factors, including: (1) middle-aged employees do not always receive 
continuous training, and therefore existing job skills might be 
obsolete in the current job market, (2) the middle aged employee often 
has higher salary requirements than other workers seeking employment in 
his or her field, (3) prospective employers are often reluctant to 
invest additional training in older workers because the firm will not 
be able to recoup that investment before the employee retires, and (4) 
the terminated employee may need to switch industries entirely, 
necessitating training, since the old industry skills are specialized 
and not easily transferable.
  Since the employer often does not have an incentive to invest in 
retraining for older workers, this tax credit will help individuals 
retrain and find new employment so that they may be gainfully employed 
for a period of time before retirement.
  Because only workers over age 50 can claim the $2,000 credit, this 
should significantly reduce the costs of the credit, and it also 
targets the relief where it is most needed. The credit is also 
refundable, so it can be claimed as a refund even if the person has no 
taxable income. In this way, the legislation is certain to benefit 
lower-income workers.
  The qualified retraining expenses under the bill are for items such 
as tuition and fees, books, supplies, equipment for college or 
technical retraining courses, and/or meals and lodging at an 
educational institution.
  There is a means test which affects those earning over $100,000 for a 
married person filing jointly, $75,000 for an individual, or $50,000 
for a married person filing separately. The value of the credit 
steadily diminishes for those earning over these amounts. The means 
test was included to ensure the retraining credit is targeted to help 
the middle class.
  Lastly, my bill initiates a comprehensive study on the special needs 
of displaced older workers. As many of my colleagues know, federal job 
assistance programs ought to be tailored to meet the various needs of 
workers seeking new jobs. Anecdotal evidence suggests older workers may 
have unique retraining needs. This study will focus on the needs of 
such workers, and help agencies meeting these needs decide how existing 
programs should be improved.
  The bill would require the General Accounting Office (GAO) to study 
the special needs of older (age 50+) displaced workers, and would 
examine: (1) the unique differences in needs between older and younger 
workers trying to find a job after a lay off, (2) an assessment of 
whether current programs adequately meet these special needs (if any) 
of older workers, (3) an assessment of whether older workers are 
disproportionately and negatively impacted by job losses attributable 
to international trade, and (4) an assessment of whether the private 
sector has sufficient incentives to invest in worker retraining for 
older workers.
  Mr. Speaker, our workers who have suffered a lay off need our help. 
In the wake of September 11, we now have two enemies to fight: 
terrorism and recession. My proposal is just one component of the 
effort to get our economy moving again and to help unemployed workers 
regain their financial footing.

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