At the end of this year, the Work Opportunity Tax Credit (WOTC) is set to expire, and rightly so. The Republican-passed continuing resolution omitted an extension, and Congress should resist the temptation to revive this misguided and ineffective subsidy. The WOTC was originally sold as a way to help disadvantaged workers gain a foothold in the labor market. In practice, it has become yet another narrow tax break that costs taxpayers billions while delivering negligible results.
A Costly and Complex Program
The WOTC allows employers to claim a credit of up to $2,400 per worker for most targeted groups if the employee works at least 400 hours in the first year. For some groups, such as disabled veterans or the long-term unemployed, the credit can reach as high as $9,600 per hire.
While these figures might sound modest in isolation, the aggregate cost is substantial. The program costs roughly $2.1 billion annually, and over the next decade (2025–2034) it will cost an estimated $25 billion in forgone federal revenue. That’s money that could otherwise be used to reduce the deficit or simplify the tax code.
The WOTC also adds another layer of bureaucratic complexity to the already byzantine corporate tax system. Firms must navigate intricate certification procedures through state workforce agencies and meet multiple verification requirements for each “target group.” For small businesses without in-house compliance teams, this administrative burden alone can outweigh any benefit.
Little Evidence of Real Labor Market Gains
Beyond its fiscal cost and complexity, the WOTC fails on its own stated terms: it does little to improve employment outcomes for disadvantaged workers.
In administrative data from Wisconsin, economist Sarah Hamersma found little to no effect of the WOTC on labor market outcomes. In another 2008 study with Carolyn Heinrich, the authors examined how temporary help agencies use the credit and concluded that such use is typically short-lived and produces no lasting employment benefits. Many temp firms claim the subsidy without providing meaningful advancement opportunities. Such use of the credit raises the problem of “windfalls,” subsidies that reward behavior that would have occurred anyway.
This windfall problem is not unique to the WOTC; it’s common in many other hiring-credit programs. Economist Tim Bartik estimated in 2006 that only about 4% of subsidized jobs are truly induced by such incentives; 96% of the time, the jobs would have been created anyway. In a 2010 study with George Erickcek on Michigan’s MEGA tax credit program, the authors found the incentive decisive in only 8% of cases, meaning 92% of credits subsidized jobs that would have existed regardless.
Similarly, a 2012 Department of Labor study by University of Pennsylvania economist Paul Heaton found that between 13 and 20% of the WOTC’s benefits actually led to new employment for disabled veterans. In other words, the windfall rate was a staggering 80 to 87%. When nine out of ten dollars go to hires that would have happened anyway, the program ceases to be an “incentive” at all. It’s just a corporate giveaway.
Who Actually Benefits?
Despite its populist branding, the vast majority of benefits accrue to large corporations, not small businesses or mom-and-pop employers.
A U.S. General Accounting Office study of California and Texas found that just 3% of participating firms accounted for 83% of all WOTC certifications, and that the top 5% of firms (measured by gross receipts) claimed two-thirds of all WOTC dollars. That pattern persists today: National chains with sophisticated HR systems are best equipped to exploit the credit, while the supposed beneficiaries — small businesses hiring locally — often don’t bother.
This concentration of benefits highlights what many economists already suspect: Hiring credits like the WOTC are less about encouraging new employment and more about subsidizing companies that have the administrative savvy to claim them. They create distortions in hiring, encourage worker churning, and often reward firms that already target low-wage or high-turnover labor pools.
The Evidence from Broader Research
The WOTC’s failures mirror those of state-level hiring credit programs. Analyzing 31 state hiring credits between 2007 and 2011, David Neumark and Diego Grijalva found that “many credits have failed to create jobs,” partly because designing the “right” incentives is nearly impossible. Worse, they found evidence that such credits can lead to worker churning, where firms repeatedly hire and fire workers simply to recapture the credit, with no net employment gains.
This evidence aligns with survey data cited by Adam Michel of the Cato Institute, who notes that both Department of Labor studies and private surveys find that firms report the credit plays “little or no role in recruitment decisions.” The result is predictable: The subsidies “do not appear to improve the job outcomes of disadvantaged workers in these jobs nor encourage the hiring of additional disadvantaged workers as intended.”
Michel’s conclusion is hard to dispute: “The Work Opportunity Tax Credit is an unnecessary and highly complex scheme that should be allowed to expire.”
The Right Kind of Pro-Work Policy
Proponents of the WOTC argue that employers would hire fewer disadvantaged workers without it. But if the empirical evidence shows the opposite, that the credit does little to change hiring behavior, then the justification collapses. Subsidizing existing jobs is not pro-work policy; it’s political theater disguised as compassion.
If Congress truly wants to help individuals on the margins of the labor market, there are better ways. Reducing marginal tax rates on low-income workers would directly raise take-home pay and improve incentives to work without distorting hiring decisions. Similarly, reforms such as reducing occupational licensing barriers, easing restrictions on independent contracting, and modernizing work requirements could lower barriers to employment more effectively than handing out subsidies to HR departments at Fortune 500 firms.
Time to Move On
After nearly three decades, the WOTC has had ample opportunity to prove its worth. It hasn’t done so. The program is expensive, inefficient, and regressive, benefiting large corporations far more than the disadvantaged workers it was meant to help.
Allowing it to expire would not be an act of cruelty or neglect; it would be an act of fiscal responsibility and policy realism. There is no virtue in maintaining programs that sound good but don’t work.
Letting the WOTC lapse would signal a welcome return to evidence-based policymaking and to a tax code that rewards productivity and innovation rather than paperwork and political symbolism.