A Congressional Leader Talks Taxes

Many Workforce members have for years been using the Work Opportunity Tax Credit (WOTC) to hire disadvantaged job candidates who may otherwise have been shut out of the work force.

When President Clinton recently rejected an $800 tax bill, which included an extension of the expiring WOTC, it left the fate of the tax credit up in the air. In an exclusive interview with Workforce, Rep. Amo Houghton, a New York Republican on the powerful House Ways and Means Committee, talks about the prospect of a special “extender” bill that would revive the WOTC. He also discusses what Workforce members can do to influence the congressional process, why Congress keeps toying with the tax code, and what’s happening with the minimum wage.

Workforce:

So it looks like the big tax cut bill isn’t going to fly. Does that mean the WOTC is dead?

Houghton:

No. WOTC as well as the research and experimental credit expired on June 30, 1999. Other so-called extenders expire December 31 and on other dates. The House Ways and Means Committee marked-up an extender bill after the President vetoed the big tax cut bill. The extender bill has not gone to the floor of the House, but that might happen any time. The Senate Finance Committee will probably mark-up their version of the extender bill in the next week or so.

Workforce:

I see. So play oddsmaker. What are the chances of this?

Houghton:

. It is not certain. However, the Chairmen–Ways and Means and Senate Finance Committees–have publicly indicated their desire and intent to extend the credits on a retroactive basis. I believe there will be a final bill. Of course, this could always go off track as we struggle to complete the Appropriations bills in order to finance the government.

The latter is the only thing we must by law do to keep the government going! I anticipate we will complete an extender bill that will be signed into law. It may be for a shorter period for WOTC, say a year, rather than the 2 1/2 years that was in the big tax bill.

Workforce:

If Workforce.com members want to make an impact, what can they do? Who can they call or e-mail?

Houghton:

. Well, be aware of the program and especially watch the expiration date. We’re in a budget confrontation here, so it is likely that once again we will end up with a short WOTC extension. I strongly look forward to the day when we enact a bill with a permanent extension of WOTC, or certainly a multi-year extension. So Workforce.com members should make their views on the subject known to their representative and senator–especially if the elected officials are members of the House Ways and Means Committee and Senate Finance Committee. That’s where most of this gets worked out. You can always call, e-mail or write your elected official. Believe me, that gets results. There is nothing like hearing from your own constituents–those people who are making the system work.

Workforce:

What’s an employer to do now? Keep hiring people eligible for the credit and hope it returns?

Houghton:

.Good question. That’s why I dislike this process we seem to go through every year, at least recently, on the extenders. For example, if I were still in business, as I was for over 30 years, I would not include the research and experimental credit in my planning.

If it’s on a year to year basis, without any hard assurance it will be continued, that is not an incentive to increase your research. However, based on the assurances of the Chairmen, I am optimistic, but cautious. I think you keep filing the paperwork to assure the company will get the credit and assume at this point it will be re-extended. We should know the answer relatively soon.

Workforce:

What if the bill doesn’t go through this year? What happens next year?

Houghton:

. It certainly is a problem if an extender bill is not enacted this year. Why? Because if we go over the calendar year end (most taxpayers file their returns based on the calendar year), then it becomes more complicated if the WOTC is extended retroactively back to July 1, 1999. Any bill would probably not be enacted until next summer. So you have many months of uncertainty, while you are trying to determine whether to delay filing the business income tax return or to later file a claim for refund.

This also creates problems with forms, etc., not to mention the negative opinion of the program that results from such uncertainty. An even-worse scenario would be to not retroactively extend the credit, but start anew in 2000.

Workforce:

With so many parts of the tax code on-again, off-again, how the heck can the average employer plan a work force and a business?

Houghton:

. Another good question. Some of the on-again, off-again is driven by revenue, or the lack thereof. We have a “pay for” rule on any new tax legislation. That creates problems because the estimated budget surpluses are small for the next few years (other than social security surpluses, which we are trying to avoid spending) and there are lots of calls on the money.

I believe a better approach than what we’ve been doing–adding new tax provisions one after another–is to take a serious crack at simplifying the tax code. It was estimated in 1991 by the Tax Foundation that a small business spent $4 for every $1 it paid in taxes. Also, there has been recent testimony that the annual cost of tax compliance is about $800 for every man, woman and child. There has to be a better way and I believe it is to concentrate on simplification. That’s what I’m trying to focus on in as chair of the Ways and Means Oversight Subcommittee–writing articles and introducing simplification legislation.

Workforce:

You’re the sponsor of the WOTC bill, you wrote it. You must believe in it. What do you say to skeptics that claim this is just more corporate welfare?

Houghton:

Well, first of all I have no problem with “corporate welfare” in the bigger sense of it encompassing all of us into one body–if it helps all. In the narrow sense, which is the typical use of the term, I don’t consider the WOTC program some corporate giveaway. This is a program that I view as a “welfare to work” program in its true and best sense. After welfare reform we are now getting down to the long-term unemployed. Of course, our strong economy has been a major force in reducing unemployment.

Nevertheless, many of the potential employees who qualify as a member of a WOTC targeted group, and thus qualify the employer for the credit. I’m told many times these individuals need basic employee training on how to work, e.g. arriving on time, proper dress, communication, becoming part of a group. An employer takes on a responsibility and additional costs when such a person is hired. WOTC encourages the employer by offsetting some of these additional costs. The benefits of the credit are significant–one, to the employee who obtains a job and begins to acquire work experience and self-respect, and two, to the employer who can end up with a loyal employee, and three, to the country in the sense that people are working and contributing. Of course, no one even mentions the fact that WOTC costs less to society than having that person on welfare. So a giveaway–I think not.

Workforce:

Are there any other incentives you’d like to push through (or that are already around but you think employers might not know about)?

Houghton:

. Well there is the welfare-to-work program which is similar to WOTC but more directed towards the long-term welfare recipient in the sense that there is a bigger credit. Hopefully, as the long-term welfare recipient is absorbed in the work force that credit will no longer be needed. We tried to merge it with WOTC this year, as an additional targeted group in order to eliminate some confusion and duplication, but were not successful. We’ll try again next year.

We also tried to expand the employer base for WOTC to include section 501(c)(3) non-profit organizations. We had a hearing on this subject as well as other issues regarding WOTC. Again, we were not successful in expanding the program to include non-profits, but we’ll keep working on these issues.

Workforce:

What other ways can Workforce.com members bring disadvantaged persons into the workforce and at same time fill recruiting needs?

Houghton:

. Well, first spread the word on the WOTC program as much as possible. I’m not sure it is used by small businesses as much as it could be. Part of that problem is probably due to the paperwork requirements and the fact that we keep extending it on a short-term basis. We probably need to do a better job of advertising the program. Also perhaps expand the pre-certification procedure, which would likely make the small business person more willing to hire someone–i.e. the paperwork has been done and the employer knows the person qualifies.

Workforce:

While I’ve got you, what’s going on with the possible minimum wage increase?

Houghton:

. A bill has been introduced in the House to increase the minimum wage by $1, phased-in over three years. In an attempt to offset the cost of this increase to businesses, especially small concerns, there are a number of tax provisions in the bill. Most of the provisions were in the vetoed tax bill; however, some were not. Plus there is the problem of paying for the tax provisions-about $35 billion over five years–if the on-budget surplus is off the table. The Democrats may offer a substitute bill with a $1 increase phased-in over two years and a few tax provisions at a lower cost. At this point, it is unclear how this will end up.

Workforce:

. It’s tough for employers. With mini wage, the wages they have to pay all of their employees could shoot up, and they don’t know “if” or “when.” With WOTC, they don’t know what’s going to happen either.

Houghton:

. You just have to keep working at this. You need a lot of patience here, because some of these things just take an inordinate amount of time to accomplish. Of course, we are always interested in input from groups such as yours. We want to know how we can improve the program. Thanks for your interest.