Legislative Update: Tax Reform & WOTC

Tax Reform: What does it mean for the Work Opportunity Tax Credit?

by David Burgess

Last month the House of Representatives passed H.R. Bill 1, or the Tax Cut and Jobs Act.  Last week the Senate passed its own version.  Both bills bring the corporate tax rate down to 20% but they use different means to get there.  This week both bodies will select conferees to attempt to reconcile the differences before final passage.  What will this mean for tax credits like the Work Opportunity Tax Credit?

Budget Reconciliation

Because the Republicans are trying to pass this bill through the budget reconciliation process, which will require only a simple majority and not the normal 60 votes required by regular order, they will have to follow the rules of budget reconciliation.  This means that they will have to match the tax cuts with budget cuts so as not to add more to the budget deficit than allocated in the budget they passed ($1.5 trillion) beyond the 10 year window of the budget.  In simple terms, they need to cut spending to offset the loss of tax dollars due to cutting the tax rates.

House Bill

Both bills make the new corporate rates permanent, but the House bill makes the new, lower tax rates for individuals permanent.  To do this, the House bill cuts a number of popular programs, such as tax incentives like WOTC.  There is historical precedent for this.  WOTC has been excluded from the House during previous reauthorizations, but has always been restored in the Senate version.  This time is proving to be no different.

Senate Bill

The Senate version takes a different approach to offset lost tax revenue.  It would delay the implementation of the lower corporate rate for one year and “sunset” the individual tax rate changes at the end of the ten year budget cycle.  Congress could decide later on to keep the lower individual rates should they prove to be successful and popular but that would be a decision for a future Congress.  This approach allows the Senate to keep a number of popular programs like WOTC.  It is not mentioned in the Senate bill, which means there will be no change to the current law that keeps WOTC in place through the end of 2019 as previously decided in the PATH Act.

WOTC – a win/win/win

Since its introduction in 1996, the WOTC program has benefited employers, workers and the government.  It saved employers money on their taxes, helped less-skilled workers gain entry into the workplace – all while taking people from welfare to work, saving both state and federal government billions of dollars in entitlement spending.  For that reason, we have been busy pointing out to the Republican legislators that while WOTC appears in the budget as tax expenditure, removing it would actually add to the deficit and cost people jobs.  Since the purpose of the tax bill is to grow the economy and create more jobs, we believe it would be a mistake to cut the program.

You can be sure that we are doing everything we can to secure the continuation of the WOTC program.  At this point no one knows what will happen in the conference committee or how long it will take, but everything we are hearing is that the Republicans want to move quickly to get this done before year’s end.  Since the Senate bill passed by a 51 – 49 vote, it seems likely that the final version will more closely resemble the Senate version.  If that is true, then WOTC will remain in effect for the foreseeable future.  You can be sure that Mckenzie Chase Management remains dedicated to efforts to continue WOTC as well as maximizing the capture of WOTC credits for all of our clients. We will keep you up to date on developments as they happen.

Dr. David Burgess is the Director of Government Relations for Mckenzie Chase Management.

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