Unintended Consequences of Tax Reform

Lost in the debate over tax reform is the stunning lack of public discussion. 

While much has been made of the changes to the state and local tax deduction, the repeal of the Alternative Minimum Tax and estate tax in the House plan there are many smaller, less well known provisions which the House has proposed being repealed without any meaningful public policy debate.

For example, the Work Opportunity Tax Credit, a tax incentive granted to employers who provide jobs for hard to hire workers was to be repealed in the House version of the plan. This provision (or one like it) has been in the tax code for almost 40 years and helps hard to hire workers trying to re-enter the workforce find jobs. These individuals include people with disabilities, Veterans, and recipients of public assistance. The program generally receives broad bi-partisan support, however, there are some lawmakers who feel that the program does not work as intended. In 2015 Congress extended the program through the end of 2019 with the express purpose of providing employers much needed clarity so that they could develop processes that would allow them to execute the program in a manner more consistent with the public policy underlying the program. Much progress has been made over the last several years in that regard.

Unfortunately, now as part of substantive tax reform the House Republicans have decided that the program should be repealed without offering any public debate on the matter, effectively going back on the promise they made in 2015 as part of the PATH Act. Regardless of whether you believe the program achieves its public policy purpose, making such a change without public debate is bad governance. We are asked to believe, for instance, that provisions relating to middle class tax cuts expiring in the future will be renewed. How can we have confidence in the renewal of such provisions when Congress is not even allowing existing tax provisions with fixed sunset dates attached to play out as Congress had committed?  

The Senate, for their part, did not try to play such games with the existing system and had no provision for the repeal of the Work Opportunity Tax Credit. In fact, Senator Portman, to his credit, put forward a bill that would make the provision permanent.   Making significant changes to important programs without meaningful public debate was wrong when the Affordable Care Act was enacted and it is equally wrong when applied to tax reform. Making significant changes quickly without public debate creates unintended consequences which harm people in ways that are hard to predict. WOTC is an important program that helps keep jobs in the United States, let’s hope that Congress follows the Senate’s lead as it pertains to WOTC on tax reform.