STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
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By Mr. SANTORUM (for himself, Mr. Baucus, Mr. Smith, Mr. Rockefeller, and Mr. Jeffords):
S. 595. A bill to amend the Internal Revenue Code of 1986 to modify the work opportunity credit and the welfare-to-work credit; to the Committee on Finance.
Mr. SANTORUM. Mr. President, I am pleased to join Senator BAUCUS in the reintroduction of the Encouraging Work Act of 2005. The Work Opportunity Tax Credit (WOTC) and We1fare-to-Work Tax Credit (W-t-W) are tax incentives that encourage employers to hire public assistance recipients and other individuals with barriers to employment. The combination of Welfare Reform passed by Congress in 1996 and the assistance to employers found in the WOTC and W-t-W has enabled expanded opportunity for many Americans. Yet more can be done. We were pleased that the Senate JOBS bill passed last year included a permanent WOTC/W-t-W provision along with helpful reforms largely supported by the Administration. Unfortunately, it was only extended in another tax relief bill. Without action by Congress WOTC and W-t-W will expire on January 1, 2006.
Under present law, WOTC provides a 40 percent tax credit on the first $6,000 of wages for those working at least 400 hours, or a partial credit of 25 percent for those working 120-399 hours. W-t-W provides a 35 percent tax credit on the first $10,000 of wages for those working 400 hours in the first year. In the second year, the W-t-W credit is 50 percent of the first $10,000 of wages earned. WOTC and W-t-W are key elements of welfare reform. A growing number of employers use these programs in the retail, health care, hotel, financial services, food, and other industries. These programs have helped over 2,700,000 previously dependent persons to find jobs.
WOTC and W-t-W eligibility is limited to: 1. Recipients of Temporary Assistance to Needy Families (TANF) in 9 of the 18 months ending on the hiring date; 2. individua1s receiving Supplemental Security Income (SSI) benefits; 3. disabled individuals with vocational rehabilitation referrals; 4. veterans on food stamps; 5. individuals in households receiving food stamp benefits; 6. qualified summer youth employees; 7. low-income ex-felons; and 8. individua1s age 18-24 1iving in empowerment zones or renewal communities. Eligibility for W-t-W is limited to individuals receiving welfare benefits for 18 consecutive months ending on the hiring date. More than 80 percent of WOTC and W-t-W hires were previously dependent on public assistance programs. These credits are both a hiring incentive--offsetting some of the higher costs of recruiting, hiring, and retaining public assistance recipients and other low-skilled individua1s--and a retention incentive, providing a higher reward for those who stay longer on the job.
After eight years of experience with these programs, their value has been well demonstrated. In 2001, the GAO issued a report that indicated that employers have significantly changed their hiring practices because of WOTC. With the resources provided by WOTC, employers have provided job mentors, lengthened training periods, engaged in recruiting outreach, and listed jobs or requested referrals from public agencies or partnerships. WOTC and W-t-W have become a true public-private partnership in which the Department of Labor, the Internal Revenue Service, the states, and employers have forged excellent working relationships.
But the challenges for employers and those looking for better opportunities are real. The job skills of eligible persons leaving welfare are sometimes limited, and the costs of recruiting, training, and supervising low-skilled individuals cause many employers to look elsewhere for employees. WOTC and W-t-W are proven incentives for encouraging employers to seek employees from the targeted groups. Despite the considerable success of WOTC and W-t-W, many vulnerable individuals still need a boost in finding employment. There are several legislative changes that would strengthen these programs, expand employment opportunities for needy individuals, and make the programs more attractive to employers.
Combine WOTC and W-t-W. The Administration's FY 2006 budget proposes to simplify these important employment incentives by combining them into one credit and making the rules for computing the combined credits simpler. The credits would be combined by creating a new welfare-to-work target group under WOTC. The minimum employment periods and credit rates for the first year of employment under the present work opportunity tax credit would apply to W-t-W employees. The maximum amount of eligible wages would continue to be $10,000 for W-t-W employees and $6,000 for other target groups ($3,000 for summer youth). In addition, the second year 50-percent credit under W-t-W would continue to be available for W-t-W employees under the modified WOTC.
Eliminate Requirement to Determine Family Income for Ex-Felons. Under current law, only those ex-felons whose annual family income is 70 percent or less than the Bureau of Labor Statistics lower living standard during the six months preceding the hiring date are eligible for WOTC. The Administration's FY 2006 budget proposes to eliminate the family income attribution rule.
Permanent Extension of WOTC and W-t-W. Permanent extension would provide these programs with greater stability, thereby encouraging more employers to participate, make investments in expanding outreach to identify potential workers from the targeted groups, and avoid the wasteful disruption of termination and renewal. A permanent extension would also encourage the state job services to invest the resources needed to make the certification process more efficient and employer-friendly.
Raise the WOTC age eligibility ceiling from 24 to 39 years of age for members of food stamp households and ``high-risk youth'' living in enterprise zones or renewal communities. Current WOTC eligibility rules heavily favor the hiring of women because single mothers are much more likely to be on welfare or food stamps. Women constitute about 80 percent of those hired under the WOTC program, but men from welfare households face the same or even greater barriers to finding work. Increasing the age ceiling in the ``food stamp category'' would greatly improve the job prospects for many absentee fathers and other ``at risk'' males. This change would be completely consistent with program objectives because many food stamp households include adults who are not working, and more than 90 percent of those on food stamps live below the poverty line.
WOTC and W-t-W are also key elements of welfare reform. Employers in the retail, health care, hotel, financial services, and food industries have incorporated this program into their hiring practices and through these programs, more than 2,700,000 previously dependent persons have found work. A recent report issued by the New York State Department of Labor bears this out in economic terms. Comparing the cost of WOTC credits, taken by New York state employers during the period 1996-2003 (for a total of $192.59 million), with savings achieved through closed welfare cases and reductions in vocational rehabilitation programs and jail spending (for a total of $199.89 million), the State of New York concluded that WOTC provided net benefits to the taxpayers even without taking into account the additional economic benefits resulting from the addition of new wages.
In that regard, the New York State analysis concluded that the roughly $90 million in wages paid to WOTC workers since 1996 generated roughly $225 million in increased economic activity. Perhaps even more importantly, the study found that roughly fifty-eight percent of the TANF recipients who entered private sector employment with the assistance of WOTC stayed off welfare. I mention the New York State study because it is the first of its kind; however, I am certain that similar conclusions would be reached in the Commonwealth of Pennsylvania or any of the other forty-eight states and the District of Columbia. These programs work and do so at a net savings to taxpayers. In fact, over a 7-year period there were more than 110,000 certifications for both WOTC and W-t-W in Pennsylvania, alone enabling many to leave welfare and find private sector work. The legislation is supported by hundreds of employers throughout Pennsylvania and around the country. WOTC and W-t-W have received high praise as well from the federal government. A 2001 GAO study concluded that employers have significantly changed their hiring practices because of WOTC by providing job mentors, longer training periods, and significant recruiting outreach efforts.
WOTC and W-t-W are not traditional government jobs programs. Instead they are precisely the type of program that we should champion in a time when we need to be fiscally responsible. These are efficient and low cost public-private partnerships that have as their goal to provide a means by which individuals can transition from welfare to a lifetime of work and dignity.
The Work Opportunity Credit and Welfare-to-Work Credit have been successful in moving traditionally hard-to-employ persons off welfare and into the workforce, where they contribute to our economy. However, employer participation in these important programs can be increased, particularly among small and medium-sized employers. This is due to the complexity of the credits and the fact that they are both only temporary provisions of the tax code subject to renewal every year or two. Small, medium, and even some large employers find it difficult to justify developing the necessary infrastructure to administer and participate in these programs when their continued existence beyond one or two years is constantly in question.
This legislation will remedy this problem by combining WOTC and W-t-W into one, more easily administered tax credit, and by making it a permanent part of the tax code. Many organizations including the National Council of Chain Restaurants, National Retail Federation, Food Marketing Institute, National Association of Convenience Stores, National Restaurant Association, American Hotel & Lodging Association, National Roofing Contractors Association, National Association of Chain Drug Stores, American Nursery and Landscape Association, and the American Health Care Association support this legislaiton. Representatives Jerry Weller R-IL, Charles Rangel D-NY, and Phil English R-PA are introducing identical legislation in the House of Representatives. I urge my colleagues to join us in supporting this legislation.