Congress Should Let the Work Opportunity Tax Credit Expire

We Can’t Afford to Keep Subsidizing Corporate Welfare

As the year winds down, Washington is once again inundated with industry groups pleading for special treatment. The latest example is the National Retail Federation’s call for Congress to extend, or even make permanent, the Work Opportunity Tax Credit (WOTC). Business lobbyists portray the credit as a vital workforce tool, a stabilizing force amid global uncertainty and a benevolent program that launches disadvantaged Americans into lifelong careers.

It’s an appealing narrative. Unfortunately, it’s one that doesn’t stand up in the face of real-world evidence.

If Congress is serious about fiscal responsibility, tax code simplicity and evidence-based policymaking, it should allow the WOTC to expire as scheduled. The only constituency that stands to lose is the large corporations that have long treated this subsidy as a predictable revenue stream.

A Corporate Giveaway Masquerading as Social Policy

When first instituted in the 1990s, the WOTC was sold as a way to help disadvantaged workers—veterans, people with disabilities and SNAP recipients—gain entry into the labor market. Three decades later, the evidence is overwhelming: The program does not meaningfully improve employment outcomes for these groups.

What it does is shift billions of dollars away from taxpayers to a narrow slice of corporate America. A U.S. General Accounting Office analysis found that just 3% of participating firms captured 83% of all WOTC certifications. The largest 5% of companies claimed two-thirds of all WOTC dollars. These are not struggling mom-and-pop shops. They are national chains with sophisticated HR and compliance operations that work to harvest the credit.

This is not a pro-worker policy. It is corporate welfare with a marketing team.

Ineffective at Best, Counterproductive at Worst

Lobbyists insist that WOTC “helps people start careers.” But independent evaluations tell a different story.

Economist Sarah Hamersma’s research using Wisconsin administrative data found little to no improvement in labor market outcomes for WOTC-eligible workers. Her work with Carolyn Heinrich shows that temporary help agencies often use the credit for short-term placements with no opportunity for advancement and no lasting benefit. Paul Heaton’s Department of Labor–commissioned study found that only 13–20% of WOTC claims for disabled veterans actually resulted in new employment, meaning the windfall rate for the corporations supposedly hiring these veterans was as high as 87%.

The pattern is clear: Most hires subsidized by the WOTC (or similar incentives) would have happened anyway.

Economist Tim Bartik estimated that hiring incentives induce real job creation only about 4% of the time. For the other 96%, taxpayers pay companies for business decisions they were already planning to make. That is not job creation; that is waste.

And in many cases, hiring tax credits create perverse incentives. Research by David Neumark and Diego Grijalva shows that similar state-level programs often fail to create jobs and may even encourage worker churning as firms hire and fire workers simply to recapture the credit.

If the goal is to improve livelihoods for disadvantaged workers, the WOTC is the wrong tool.

A High Cost for Minimal Benefit

The WOTC drains roughly $2.1 billion per year from federal revenues. Over the coming decade, extending the credit would cost taxpayers roughly $25 billion.

A program that delivers negligible labor market gains and overwhelmingly rewards companies that would have hired anyway is an indefensible use of public money, especially at a time of record deficits and rising debt service costs.

The tax code is already riddled with carve-outs and special privileges. Layering another decade of subsidies onto a program that fails by its own stated objectives would move the tax code further away from neutrality, simplicity and fairness.

A Better Path Forward

If policymakers want to help disadvantaged workers, more effective reforms are readily available:

• Lower regulatory barriers such as occupational licensing rules that keep would-be workers sidelined.

• Modernize work requirements and remove structural barriers to employment.

• Expand opportunities for independent contracting and flexible work arrangements.

These reforms actually improve incentives to work and grow the labor market. They do not require building subsidy-harvesting bureaucracies inside HR departments.

A Test of Fiscal Responsibility

With the nation’s debt at historic highs, extending an ineffective, costly and regressive corporate subsidy is the opposite of responsible governance. Allowing the WOTC to expire would demonstrate that Congress can still distinguish between genuinely pro-worker policies and corporate tax preferences.

The business lobby wants lawmakers to believe that letting the credit lapse would harm workers. The data show the opposite: The credit barely affects hiring decisions, and its benefits accrue overwhelmingly to employers, not employees.

Congress should resist the lobbying pressure, follow the evidence, and let the WOTC expire as intended. It is time to end this corporate handout and start building a tax code that truly reflects the nation’s priorities.