The Quiet Expansion of a Useless Hiring Subsidy

The Work Opportunity Tax Credit (WOTC) has ballooned—but inconspicuously, attracting little public attention. The WOTC is a federal employer tax credit designed to boost hiring among ten “targeted groups”—including SNAP recipients, veterans, ex-felons, and the long-term unemployed. In practice, employers can claim up to $2,400 per qualifying worker—no matter how many they hire. Although the WOTC pales in comparison to headline-grabbing subsidies as those of the Affordable Care Act, it has grown from roughly $135 million and 400,000 subsidized hires per year at its inception to more than 2.5 million workers today, at an annual cost exceeding $2 billion. About 4 percent of all new hires in the United States now have their wages subsidized through the WOTC—more than twice the share of workers earning wages at or below the federal minimum wage. The program continues to drift under the radar, while steadily expanding in scope and scale. Over the coming decade, it is poised to cost taxpayers roughly $25 billion, all while delivering no measurable improvement in actual work opportunities for the people it was designed to help.

While created as a temporary program with a one-year sunset, the WOTC has existed for nearly three decades. Congress repeatedly extended, replaced and reinstated, let lapse, and retroactively revived the credit—perfectly in tune with Milton Friedman’s maxim that nothing is so permanent as a temporary government program.

Once again, although the program formally came to an end on December 31, 2025, trade associations are working to press Congress for its revival. The familiar pattern of perpetual extension may recur: a new bill has already been introduced by Rep. Lloyd Smucker (R-Pa.). The Republican Study Committee (RSC) published a reconciliation framework advocating a renewal of the credit, portraying it as an incentive for businesses to “create new jobs” and reduce Americans’ dependence on government assistance. This proposal has bipartisan support and, if enacted, would only intensify the WOTC’s drain on taxpayers. The credit would rise from 40 to 50 percent of qualified wages and be indexed to inflation. Eligibility would also broaden to include military spouses, while eliminating the age limit for qualified SNAP recipients.

Rep. Smucker rightfully argues that “[t]he best anti-poverty program is a good job.” He is simply wrong, however, in claiming that the WOTC “helps both employers and workers, as individuals transition back into the workforce.”

In fact, a new National Bureau of Economic Research study makes the economic reality abundantly clear: the paper concludes that the WOTC produces “precise null effects on hiring, employment, and earnings across all specifications,” and its estimates are tight enough to rule out even gains in hiring as small as 0.2 percentage points. The credit largely operates as a “pure transfer to the firms” with no employment benefits because they generally claim subsidies for people they would have hired absent the subsidy. The researchers also find no evidence of effects on either public benefit or criminal activity outcomes, contrary to lobbyists’ claims. They conclude that roughly 97 percent of WOTC-subsidized hires are “windfall wastage,” and cannot say for certain that the figure is not 100 percent.

To see why, one need only look to the program’s design: it presumes employers will know an applicant’s status before the hiring process. But in the United States, strong employment-discrimination protections deter firms from screening applicants for criminal records or the collection of benefits. Even when applications do ask eligibility-related questions, 83.3 percent of applications that include such questions promise the information will not reach employers or affect hiring (indicating liability concerns). The credit therefore does not alter hiring behavior, but gives firms every incentive to sift through routine hires after the fact and collect a bonus for workers they would have employed regardless.

Moreover, SNAP recipients comprise roughly two-thirds of all subsidized hires. Yet employing a SNAP recipient does not meaningfully differ from employing anyone else. Unlike ex-felons or the long-term unemployed—who may face real or perceived risk, legal stigma, or weak work histories—SNAP recipients are typically indistinguishable from the broader low-wage workforce. Many already cycle through jobs in retail, food service, caregiving, and warehousing. Thus, the WOTC has become a permanent revenue stream that simply offsets labor costs in those industries.

In short, study after study demonstrates that the WOTC fails to promote employment, deliver sustained wage and job tenure benefits, or influence long-term labor market outcomes for WOTC-eligible workers. It has proven effective only in funneling billions in subsidies to select large firms in sectors that rely heavily on low-wage labor.

As early as 2001, the General Accounting Office (now the Government Accountability Office) reported that just 3 percent of participating employers accounted for roughly 83 percent of all WOTC hires, while about 65 percent of employers made only a single WOTC hire. Large firms—those whose gross receipts exceed $1 billion (in 2001 dollars)—captured most of the credit, a pattern that has persisted.

If Congress were earnest about improving upward mobility for disadvantaged workers, it would pursue policies that actually work. Reforming welfare and cutting marginal tax rates on low-income earners would strengthen incentives to enter and remain in the workforce. Reducing occupational-licensing regulation—and streamlining the conversion of military training into civilian credentials—would lower entry barriers. Likewise, repealing minimum-wage laws, which have disadvantaged the very demographics they are alleged to benefit, would open work opportunities for low-income Americans.

The WOTC has survived despite being a useless corporate welfare program that redistributes income through a subsidy to otherwise viable big businesses. It has become a textbook example of “temporary” tax extenders: devices that allow Congress to postpone a reckoning with unsustainable debt while catering to politically significant special interests—even as annual budget deficits approach $2 trillion. Congress should permanently retire the WOTC and finally let it take its place among the “government tried and failed” case studies, where it belongs.