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Update on Tax Reform and its potential effect on WOTC

On September 27, the Republicans revealed the framework of what they hope to accomplish with tax reform. Herein is a general overview of their plan and the impact we believe it can have on the Work Opportunity Tax Credit (WOTC). Considering the proposed reduction in the corporate tax rate from 35% to 20%, deductions and credits are not necessary to the same degree that they were in the past. Under the Republicans’ framework, two popular credits are explicitly referenced to be continued:

  • Research and Development credit
  • Low-Income Housing credit

The remaining credits, including WOTC, and other deductions are subject to review by the tax-writing committees, leaving their fate unclear at the present time.

Several years ago, a major study was commissioned by the Wharton Business School to determine the effectiveness of WOTC. The study concluded that the credit actually paid for itself through a reduction in federal entitlement payments. This study has been widely disseminated to Congress and has been instrumental in lobbying for the continuation of the program in recent years. We continue to feel WOTC stands a good chance of being part of a tax reform, possible made permanent, even though it remains unclear what form the final tax reform bill will take.

Will the Republicans be successful in creating a major reform bill or will the bill be modified to become a more limited tax cut? How successful will the Republicans be in devising pay fors to offset the tax cut? How will the impact of the bill be scored? As the Obamacare repeal effort showed, passing a major piece of legislation like this is very difficult and may go through many gyrations on its way to final passage — if it gets that far. Many of these larger questions will need to be answered before the fate of WOTC can be considered.

Walton remains committed to closely monitoring and reporting information as it becomes available.

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