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Piecing Together Tax Reform: Showing WOTC Value When it Counts

In recent weeks, ADP representatives joined members of the National Employment Opportunity Network (NEON) in meetings with members of the tax-writing committees from both the U.S. Senate and House. The primary purpose of these meetings was to present an analysis prepared by Peter Cappelli (Labor Economist, Wharton School of Business, University of Pennsylvania) of the value of the Work Opportunity Tax Credit (WOTC) program. 

Professor Cappelli prepared an analysis of WOTC in 2011, concluded that the program is worthy, and achieved its goals. His recent analysis takes a more in depth look at program “cost” to determine value and associated federal expenditure savings. 

Professor Cappelli summarized his analysis by stating that WOTC participants generally save the federal budget $19,282 per participant in federal assistance. He reduces this figure by the national average credit of $1,560 per participant to reach a net value of $17,722 in savings per participant and indicates this number may be higher for the supplemental security income (SSI) and veteran category1.

Because of the current economic challenges coupled with tax reform, the Senate Finance and Ways & Means Committees have indicated that many, if not all, tax provisions are under review for their merit and cost; WOTC is no exception. However, Professor Cappelli’s analysis was well received by the members of the Senate and House tax-writing committees, many members of which were pleased to see a fair and reasonable dynamic scoring approach, different from the traditional cost-evaluating methods exercised by the Joint Tax Committee. 

With Congress scheduled to return to session on June 3, 2013, Washington DC professionals in the know have provided a status of tax reform in the text below, some of which suggests that some type of reform could be possible and that reform may be a priority for the Senate Finance and Ways & Means committees:

In a meeting with Republican Members of the Committee on Ways and Means earlier this week, Chairman Dave Camp (R-Michigan) reiterated that the current investigation of the treatment of certain tax-exempt organizations by the IRS must not distract the Committee from the goal of achieving comprehensive tax reform in this Congress. Camp told his Members that the Committee is capable of pursuing both initiatives. In a recent Committee hearing on the IRS, several Members, including Chairman Camp and former Democratic Chairman Charles Rangel (D-New York) suggested that the IRS issues might be best dealt with through tax reform.

Chairman Camp and his Republican Members are considering possible options to achieving a mandate for tax reform that would include a commitment from the Administration; the focus of these efforts is the negotiations over the federal debt ceiling. The current authority for the President to increase borrowing by the federal government expires soon, and while better than anticipated federal revenues will allow the Treasury Department to delay the need to increase borrowing, it is anticipated that a debt increase will be needed sometime in early fall. While various potential options are under consideration, one concept under consideration would tie further debt ceiling increases to progress on the enactment of tax reform. One approach to accomplishing this would be to mandate that the tax-writing committees produce a reform bill by a date certain in early 2014 as part of a debt ceiling agreement.

While the current crisis over the IRS’ treatment of tax-exempt groups could prove a distraction from the tax reform effort, it could also provide the impetus for reform legislation. In his statement in reaction to the IRS matter, Senate Finance Chairman Max Baucus (D-Montana), while condemning the IRS action, suggested that the law affecting tax-exempts may have contributed to the matter because it is in many respects vague. In Baucus’ view, both the procedures for reviewing tax-exempt organization applications and the substantive law regarding who should be recognized as exempt are in need of legislative reform.

While the IRS investigation has, in the near term, taken precedence over tax reform, it appears likely that both Chairman Camp and Chairman Baucus will try soon to pivot back to the reform effort to which they are both highly committed. Given that Chairman Camp must step down as Ways and Means Chairman at the end of this Congress and Chairman Baucus has chosen not to run for another term in the Senate, neither can afford to spend too much time away from the reform effort.

In fact, there are indications that the Ways and Means working groups will not disband, but will instead remain in place as the Committee moves ahead with its reform efforts.  Chairman Camp is hoping that the working groups will serve as bipartisan advisers to the Committee at large on key areas of the tax code. In an interview, Chairman Baucus indicated that he is hopeful that a budget deal will come together as part of the debt ceiling negotiations and will involve a mandate for tax reform and an agreement on savings for debt reduction. Chairman Baucus also noted that Senate Democrats would want some new revenues to be dedicated to debt reduction.

As for now, the expectation remains that the Ways and Means Committee will move ahead with a comprehensive reform bill and that the next steps will depend on the ability of the two Chairs to forge a bipartisan consensus and draw in greater participation by the Administration.

 Learn more about leveraging tax credits and incentives with help from ADP.





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