Statement of the Honorable Fred Grandy,
President and Chief Executive Officer, Goodwill Industries International, Inc.
(former Member of Congress)
Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means
Hearing on the Work Opportunity Tax Credit.
July 1, 1999
Mr. Chairman and Members of the Subcommittee:
On behalf of the Goodwill Industries network, this opportunity to present testimony in strong support of H.R. 2101, legislation to extend and improve the Work Opportunity Tax Credit (WOTC), is appreciated. With 24 bipartisan members of the full House Ways and Means Committee cosponsoring this bill upon introduction, the critical need for enactment of this legislation is underscored.
Goodwill Industries International, Inc. is the corporate office of a network of 175 autonomous, community-based organizations operating throughout the United States. Each of these organizations, tax-exempt under Section 501(c)(3) of the Internal Revenue Code, provides a broad variety of employment and job-training services to individuals who are vocationally disadvantaged. Welfare recipients, individuals with physical and mental disabilities, dislocated workers, recovering substance abusers and ex-felons are among the populations typically served by a local Goodwill Industries.
While Goodwill is perhaps best known for its more than 1700 retail stores that provide consumers with quality clothing and household goods at reasonable prices, it is important to recognize how those revenues are used to support Goodwill Industries' charitable mission. In 1998, Goodwill Industries provided vocational services to more than 320,000 individuals, with nearly 75,000 people coming to Goodwill for assistance in finding employment. Of that number, 58,000 were placed into the nation's competitive work force as a direct result of Goodwill's efforts. We estimate that these newly-employed individuals earned $641 million in salaries and wages, generating an estimated $96 million in federal, state and local tax revenues. In effect, Goodwill Industries turns "tax consumers" into taxpayers. In addition, the nature of Goodwill's operations allows us to be the employer of "first resort," employing people who have little or no job experience in our retail and contract operations, allowing them to gain the skills necessary to obtain work and advance in the competitive labor market. Goodwill can also be the employer of "last resort" for those individuals who have been unable to succeed in the competitive labor market and who need a more structured work environment or longer-term vocational-related services.
Because we often deal with individuals with severe or multiple barriers to employment, job placement specialists within Goodwill Industries regularly report that utilization of the Work Opportunity Tax Credit often means the difference between a person finding a job or remaining dependent on government support payments.
H.R. 2101 calls for two critically important changes to the WOTC program. The first would permanently extend the credit. Originally as the Targeted Jobs Tax Credit and now as the Work Opportunity Tax Credit, Congress has typically authorized this employment incentive for one-year or 18-month periods, often allowing the credit to expire and then retroactively extending it. This "on again, off again" approach has caused considerable confusion among employers, personnel in state employment service offices who administer the program and placement specialists in organizations such as Goodwill Industries who strive to match employers with individuals in need of a job. As of approximately 10 hours ago, the WOTC is again in limbo. Congress has consistently recognized the importance of the WOTC as evidenced by regular, albeit short-term, reauthorizations. Now is the time to add stability to the program. Today's robust economy has produced labor market shortages in many areas of the country, forcing employers to look for workers who previously would have been deemed as unsuitable for work. While the WOTC will not make an "unsuitable" individual work ready, its use combined with public and private resources for pre-employment training can often make the difference. The modest financial incentive for employers produced by the Work Opportunity Tax Credit allows for a partial offset of the higher post-employment job-training costs associated with WOTC-eligible populations.
Critics of the WOTC mistakenly characterize the credit as an example of "corporate welfare," rewarding businesses for hiring workers whom they would employ anyway. It is, however, important to recognize that employers are now competing for what we at Goodwill Industries call the second- and third-tier levels of the unemployed -- individuals for whom "work first" or "rapid attachment" strategies have been unsuccessful because of the severity of their barriers to work. Countless studies and reports in the press point to the dramatic success in the reduction in the nation's welfare roles, with many local economies at or near "full" employment. Despite the strong economy, all is not well among the WOTC-eligible populations. For example:
Given the above statistics, there is clearly a need for tax incentives for employers to hire from WOTC-eligible populations that experience chronic unemployment. A permanent extension of the Work Opportunity Tax Credit will provide employers with a strong, consistent signal that the federal government supports their efforts to assist all citizens to become productive members of the nation's work force.
A second, critically important element of H.R. 2101 is a provision that would substantially increase the effectiveness of the Work Opportunity Tax Credit by allowing charitable organizations to participate in the WOTC program. This proposal, first offered in the 105th Congress by Representatives Nancy Johnson and Nita Lowey, would permit charitable organizations exempt from income tax under Section 501(c)(3) of the Internal Revenue Code to receive a credit against payroll taxes when they hire WOTC-eligible individuals. In a "Dear Colleague" letter to the House last year, Representatives Johnson and Lowey said:
By not including nonprofits, such as hospitals and community-based organizations, the current WOTC excludes some of the largest employers in our Nation's inner cities--areas where most of those eligible for WOTC reside.
This provision would also encourage nonprofit entities such as colleges, universities, nursing homes and museums -- organizations that often hire significant numbers of entry-level workers -- to employ individuals from the WOTC-eligible populations.
Although exempt from taxation on income (except for income substantially unrelated to an organization's exempt purpose), charitable entities do in fact pay federal taxes on gross wages paid to employees. Under H.R. 2101, the 7.65 percent employer-paid Social Security and Medicare tax on wages paid to WOTC-eligible workers would be offset, up to a maximum of $2,400 in the first year of employment. The legislation would also provide charitable organizations with a second year of payroll tax offsets when they hire welfare recipients. For a newly-hired entry-level worker earning the current minimum wage, the payroll tax offset would come to nearly $800 for each WOTC-eligible worker. These revenues could be used, for example, to provide additional skills training to WOTC workers or to support an organization's charitable mission.
It is very important to recognize that this proposal would have no negative impact on the Social Security or Medicare trust funds. The amount of the tax-exempt employer's credit would be treated as payment towards the organization's payroll tax liability, with general revenues appropriated for payments to the trust funds. Similarly, the WOTC employee's Social Security earnings record would not be affected.
The cost of this proposal is surprisingly modest, an important factor in this era of fiscal restraint. An analysis prepared last year by the Joint Committee on Taxation on the original Johnson- Lowey proposal projected first-year costs of $29 million, with the provision estimated to cost $119 over five years. Because of modifications to the original proposal made in the Houghton-Rangel legislation, we expect that the first-year cost of H.R. 2101 will be slightly higher. The legislation would authorize this provision as a demonstration for three years in order to give Congress an opportunity to assess its effectiveness in creating employment opportunities within the targeted populations.
A study published earlier this month by the National Center for the Study of Adult Learning and Literacy at Harvard University concluded that because welfare recipients remaining on the roles have such low basic job skills, the vast majority of available jobs are not open to them. By expanding the Work Opportunity Tax Credit to include participation by charitable organizations, welfare recipients and other WOTC-eligible individuals will have a greater chance to take that first step into the nation's workforce. Accordingly, we urge favorable consideration of H.R. 2101 by the 106th Congress. A list of additional national organizations also supporting this measure is attached.
Again, this opportunity to testify on behalf of the Goodwill Industries network in support of H.R. 2101 is appreciated. I would be pleased to respond to any questions you may have.
ORGANIZATIONS SUPPORTING H.R. 2101
(As of June 28, 1999)
In addition to Goodwill Industries International the following national organization support enactment of H.R. 2101:
American Network of Community Options and Resources
The Arc
Consortiun For Citizens with Disabilities -- Employment and Training Task Force
Easter Seals
Epilepsy Foundation
Inter/National Association of Business, Industry and Rehabilitation
National Alliance for the Mentally Ill
National Assembly of Health and Human Service Organizations representing:Alliance for Children and Families
American Association of Homes and Services for the Aging
American Camping Association
American Cancer Society
American Foundation for the Blind
American Humane Association
American Red Cross
Association for Volunteer Administration
Association of Jewish Family and Children's Agencies
Association of Junior Leagues International Inc.
Big Brothers Big Sisters of America
Boy Scouts of America Inc.
Boys & Girls Clubs of America
Camp Fire Boys and Girls
Campaign for Tobacco-free Kids
Catholic Charities USA
Child Welfare League of America
Citizens' Scholarship Foundation of America
Civil Air Patrol
Coalition for Juvenile Justice
Council on Accreditation of Services for Families and Children
Families, 4H, and Nutrition
Girl Scouts of the USA
Girls Incorporated
Habitat for Humanity International
Hostelling International--American Youth Hostels
Joint Action in Community Service
Lutheran Services in America
National Benevolent Association
The National Center for Missing and Exploited Children
National Coalition of Hispanic Health and Human Services Organizations (Cossmho)
The National Council on the Aging
National Crime Prevention Council
National 4-h Council
National Mental Health Association
The National Mentoring Partnership
National Network for Youth
National Urban League
Neighborhood Reinvestment Corporation
The Points of Light Foundation
The Salvation Army
Save the Children
Second Harvest
Sos Children's Villages--USA, Inc.
Street Law, Inc.
Travelers Aid International
United Neighborhood Centers of America
United Seamen's Service
United Way of America
Volunteers of America
Wave Inc.
Women in Community Service (Wics)
YMCA of the USA
Youth Service America
YWCA of the USANational Association of Independent Colleges and Universities
National Association of Protection and Advocacy Systems
National Industries for the Blind
National Mental Health Association
National Rehabilitation Association
National Rehabilitation Facilities Association
NISH -- National Industries for the Severely Handicapped
Paralyzed Veterans of America
United Cerebral Palsy Associations