Last year's welfare reform bill, which placed limits on how long people could receive assistance, left many asking if welfare recipients would be able to find jobs once their benefits ran out. The Clinton administration has proposed making welfare recipients more attractive to potential employers by offering a $300 million Welfare-to-Work Tax Credit, an incentive for businesses that hire people who were once on the dole.
A March study by the congressional Joint Economic Committee suggests, however, that the WWTC would differ little from the Targeted Jobs Tax Credit. That was an unsuccessful attempt in the 1970s to entice businesses with tax credits if they hired the chronically unemployed.
The proposed WWTC would offer a tax credit of 50 percent of the first $10,000 in wages and some fringe benefits paid by any firm that hires a person who had received Aid to Families with Dependent Children, food stamps, or general assistance for at least 18 months. The company could claim the credit for the first 180 days or 400 hours that person was on the payroll.
While the WWTC would target only long-term welfare recipients, it is structured much like the Targeted Jobs Tax Credit, which from 1978 until 1994 offered businesses tax credits if they hired Vietnam veterans (disabled or not), recipients of Supplemental Security Income, ex-felons, low-income teenagers, and short-term welfare recipients. A 1995 Congressional Research Service study concluded that the TJTC "helped relatively few members of its eligible population get jobs." And the jobs offered were often of the short-term, subsidized variety "which could not have afforded [employees] much chance to acquire the skills and experience that might qualify them for unsubsidized jobs."
CRS study author Linda Levine also noted that targeted tax credit programs tend to be zero-sum games. Receiving a tax credit doesn't entice employers to create new jobs; instead, they often lay off marginal workers who don't qualify for the tax credit and replace them with unemployed people who do.
As a consequence, concludes the Joint Economic Committee report, welfare recipients may displace workers who have refused to take public assistance and encourage people who would otherwise leave the welfare rolls to stay on them long enough to qualify for the tax credit. Rather than targeted tax credits, the JEC encourages more broad-based tax relief for businesses "so they can create new jobs for welfare recipients without sacrificing productivity or displacing other needy workers."