to my job. Without Section 1 27, all of the education benefits H-P provides would be
taxable. Now I make $1,800 per month. If I had to pay Social Security, federal, state, and
local taxes on the value of my education benefits, I just couldn't do it.
I want to assure you that I'm not alone. There are literally hundreds of workers at the
Spokane facility ~ and thousands more across this country - who are going to school
under the same circumstances that I am. We are dedicated to our work and to getting an
education. According to a study done by Coopers & Lybrand using federal government
data, more than 70% of Section 1 27 recipients earn less than $30,000 per year and more
than one-third of us make less than $20,000 per year. We are taking business-related
courses as well as courses in engineering, health sciences and nursing, education and
computer science. The executive summary of that study, "Section 1 27: Who Benefits? At
What Cost?" is attached to my testimony.
As you know, the founders of Hewlett-Packard believed in the concept of life-long
learning. Furthermore, you know that America's companies and workers are facing a very
competitive business environment. Major companies, including Hewlett-Packard, are
restructuring. If you're not trained, if you don't keep learning, you aren't going to have a
job. You won't be able to support yourself and your family.
In this demanding time, it's important for employers and employees to work together.
Section 1 27 is an essential part of that strategy for developing and keeping a world-class
workforce. It's essential for working people like me who are striving to support ourselves
and our families.
If you can do only one thing, I ask you to make sure that Section 1 27 becomes a
permanent part of the tax code so that I can keep on going to school. On behalf of all the
workers at the Hewlett-Packard facility in Spokane, Washington, I thank you.
177
Coopers
&Lybrand
Section 127
Employee Educational
Assistance
Who Benefits?
At What Cost?
A study prepared by
Coopers & Ly brand's
National Tax Policy Group
for
The Employee Educational Assistance Coalition
June 1989
178
Executive Siiinmarv
"Section 127, Employee Educational Assistance: Who Benefits? At
What Cost?" is designed to respond to frequently asked questions
about the utilization of employer-provided educational
assistance.
This report analyzes two Department of Education data sets, the
National Post-Secondary Aid Study (NPSAS) for 1966 and the
Triennial Adult Education Survey which has been conducted since
1969.
Its findings are as follows:
• Section 127 benefits appear to be distributed in a manner
closely paralleling earnings among the labor force as a
whole. Benefits do not accrue disproportionately to higher
paid employees. Nearly 99% of Section 127 recipients earn
less than $50,000, 71% less than $30,000 and 36% less than
$20,000.
• Over ninety percent of Section 127 benefits are for less
than $2,000. Average payments are concentrated well below
$1,000 and generally correlate to costs of tuition, fees,
books and supplies. The mean assistance level is $621.
179
• Benefit payments on the average are higher for those
attending private universities ($1,200) vs. those attending
public institutions ($300) .
• Those attending professional schools — law, medicine,
architecture/environmental design — account for less than
one-half of one-percent of all Section 127 recipients.
• Nearly half of those with identified majors and using
Section 127 benefits are taking business-related courses
with the remainder taking, in descending order, courses in
engineering, health science/nursing, education and computer
science.
• To reinstate Section 127 benefits for both graduate and
xindergraduate courses would cost the Treasury a little more
than $100 million in 1990.
180
Chairman Rangel. Thank you, Ms. Harrison. You can't beat suc-
cess, and you have proven that it works by being here with your
eloquent testimony.
Mr. Howard, the building trades industry doesn't get high points
for outreach to minorities, and you have been tremendous not only
with the targeted jobs credit in getting nationwide support, but
also with the low-income housing credit. How do you explain the
reputation of the construction industry generally and the home
building industry, specifically, in terms of minorities?
Mr. Howard. Well, Mr. Chairman, let me say that NAHB rep-
resents the building companies rather than the specific building
trades and the subcontractors.
I will say that to the — and I am not sure exactly what statistics
you have that would show that our industry has been less than
perfect in its performance in this area — the Home Builders Insti-
tute is something that we formed a few years back to try and im-
prove the quality of the work force and the training that goes to
younger Americans and to minorities and to the disadvantaged,
and that is something that our association takes a great deal of
pride in. It is one of the ways that we, as successful entrepreneurs,
would like to reach back into those communities.
Chairman Rangel. Well, it makes sense to me, but what rela-
tionship do you have with the actual workers? I mean, you support
the targeted jobs credits, but you don't hire the people yourself, do
you?
Mr. Howard. What we do, sir, through the HBI is when the peo-
ple who are being trained at the Job Corps centers have graduated,
they come to the Home Builders Institute, which is our educational
branch, and our coordinators then take them to construction sites
in various areas to work with various of our members who, through
their projects, have committed to working with HBI, and we bring
those newly trained employable people into the work force through
that system.
So, as directly as we can, we try through the Home Builders In-
stitute to become involved with minorities and some of the dis-
advantaged people.
Chairman Rangel. OK But it is not shocking to you that the
construction trade unions have a record of racism in the past and
today. I mean, that is not news to you.
Mr. Howard. Mr. Chairman, I am not sure that it would be ap-
propriate for me to comment on the trade union's reputation. I can
only speak for NAHB and its members, sir.
Chairman Rangel. But I thought that your members were actu-
ally training people in order to do the work.
Mr. Howard. Yes, sir, and then we work with the people that
are actually doing the employment to try and get them to hire
them for the specific projects.
Chairman Rangel. And in most of those cases, these are unions
that have to?
Mr. Howard. No, sir. Most of the Home Building sites are non-
union sites.
181
Chairman Rangel. I see. Could you share with me, if you know,
the number of minorities that are being trained by the Home
Builders for the nonunion work?
Mr. Howard. I don't have those numbers available, sir, but I will
be happy to respond in writing.
[The following was subsequently received:]
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Chairman Rangel. Grood, because if it is something that you feel
proud of, then I certainly think that we should have you disasso-
ciate it where we have tne problem, and I will do all that I can to
laud the work that you are doing in your outreach program.
Continued success, Ms. Harrison and United Way, and, certainly,
the military has made its position clear, and it makes a lot of sense
to us. We apologize for the length of time you had to stay here. It
was not our doing, but we appreciate the fact that you did stay.
This committee will stand adjourned, subject to the call of the
Chair. Thank you.
[Whereupon, at 3 p.m., the hearing was adjourned.]
[Submissions for tne record follow!]
184
STATEMENT OF CHIEF MASTER SERGEANT NORM PARNES. USAF
(RETIRED), AIR FORCE SERGEANTS ASSOCIATION
Mister Chairman and distinguished members of the Subcommittees on
Select Revenue Measures and Human Resources, Committee on Ways and
Means, thank you for the opportunity to present views today on behalf of
the 167,000 members of the Air Force Sergeants Association (AFSA) re-
garding the Earned Income Tax Credit (EITC).
Mr. Chairman, AFSA is very pleased that the administration has proposed a
major expansion of the EITC to an amount that is intended to lift working
low-income families out of poverty. We understand that the proposed
changes are intended to offset the regressive effect of the proposed energy
tax on families with certain income limits, and we certainly support that.
Our association believes these changes are great enhancements to the EITC
program; however, we also believe that we must first correct a terrible
injustice that has been with us for quite some time.
Visualize a young airman stationed at Andrews Air Force Base, Maryland,
if you will. This young airman is married, has one child and lives in an
apartment in Suitland, Maryland. His wife works part-time, and with their
combined salary, they just barely make it in the runaway inflation arena
that we have experienced in the last few years. They do have a couple of
things going for them though. First, they qualify for food stamps. Yes,
Mr. Chairman, I said food stamps! Can you imagine being a member of the
military service in the greatest democracy in the world and qualifying for
food stamps? Well it's true; actually, $24.5 million in food stamps were re-
deemed by lower ranking enlisted personnel in military commissaries in
1992, but that is not why we are here today. This couple also qualifies for
the Earned Income Tax Credit (EITC) — and we are agreed that certainly
helps those that so badly need the credit, or why would we be here today?
However, changes in this young couple's budget-planning, such as the ad-
ministration-proposed military pay freeze and this young airman's as-
signment to Ramstein AB, Germany, devastate their lifestyle. Upon arrival
in Germany, they learn that the Food Stamp Program does not exist on
foreign soil, even in the base commissary; his wife cannot work off-base;
and they no longer qualify for the Earned Income Tax Credit because they
are outside of the United States. That's right, Mr. Chairman and members
of the committee — they are now ofli eligible for EITC (even though they
still qualify, based on their disposable income) as they were back in
Maryland.
Mr. Chairman, before we make the changes requested by the administra-
tion — and we do support those changes — this travesty needs to be cor-
rected. This committee can't fix the food stamp problem or the pay prob-
lem — but it can fix the EITC problem, and that will be a start. Please don't
ignore this problem as so many others have before you.
The Earned Income Tax Credit for all military personnel who qualified was
included in last year's H.R. 11, which was vetoed by then President Bush.
Mr. Chairman, AFSA is asking that you include EITC for military personnel
stationed overseas in any changes that are effected to the tax laws this
year. Fairness and equity are required in this case, and we ask the com-
mittee to please support this issue.
Thank you for allowing us the opportunity to provide this testimony on
behalf of our membership.
185
American Society for Payroll Management
P.O. Box 1 22 1 , New York, NY 1 0025
Phone (212) 662-6010 â– Fax (212) 866-6517
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MAR 2 9 1993
N».YCTtN««Yort nAK C 7 1770 f*« Yat. New Yort
The Honorable Charles B. Rangle
Chairman, Subcommittee on Select Revenue Measures
&
The Honorable Robert T. Matsui
Chairman, Subcommittee on Human Resources
U.S. House o£ Representatives
Washington, DC 20515
Dear Chairman Rangle and Chairman Matsui:
Although we are unable to appear before your March 30 Joint
hearing on welfare reform, we are pleased to submit these
suggestions for your consideration and for the record. We will
not review the arguments for employer-provided non- job-related
educational assistance as we believe you and the members of the
subcommittees agree that the merits of the program are evident
and that the program must be stabilized by making it permanently
retroactive to July 1, 1992. Our comments below explain the need
for special procedures for Form W-2 corrections, tax refunds and
penalty waivers, to allow employers to correct reporting and
withholding mistakes created by the confusion over whether Sec.
127 would be extended again.
Correcting for H.R. 127 - Educational Assistance
The 1992 status flip-flop bred non-compliance. When the tax
break expired on July 1, 1992 many employers did nothing because
they expected a repeat of prior years' experience when taxfree
status would be restored before year end. When the veto of H.R.
11 in November settled the issue, some employers scrambled to
recharacterize their tuition reimbursements, others didn't.
Anecdotal evidence suggests an even split between compliance and
non-compliance.
ASPM conducted a survey in March 1993 among a stratified sample
of our members to provide empirical evidence as to employer
reaction to the 1992 lapse in educational assistance.
Respondents were people in charge of payroll at firms ranging
from 110,000 to 140 employees and handled educational assistance
for a total of 41,442 employees. Of 50 respondents, 24 reported
that they deemed educational assistance to be taxable income last
year (15 in July plus another nine by December), but 26 did not
act on the tax status change because they expected Congress to
extend Sec. 127.
Thus employers are caught in a 50/50 split between compliance and
non-compliance. If the tax break for educational assistance be
restored retroactively, employers who were non-compliant in 1992
will be made whole but employers who complied with the status
change during 1992 will become non-compliant. If the tax break
be restored prospectively in 1993, the tables are turned. Under
186
either alternative, the number of corrections that will be
required is tremendous. There would be a flood o£ corrected 1992
W-2s, amended 1040 returns and corrected 941 tax returns
resulting in administrative disaster not only for employers but
for employees, the Internal Revenue Service and the Social
Security Administration. We therefore urge Congress to provide
special, one-time-only, relief from normal procedures for making
corrections to 1992 educational assistance reports. Penalties
also should be waived because of the circumstances that were so
confusing that one half of all employers reported and withheld
incorrectly (reporting income for income tax, social security
tax, and medicare tax, respectively) whether Sec. 127 is extended
retroactively, prospectively, or not at all.
Alan Herkowski, Eaton Corporation, Cleveland, Ohio suggests on
behalf of the members of ASPM that compliant employers make 1992
adjustments on their information reports and tax returns for tax
year 1993 by (1) reporting 1992 educational assistance
reimbursements after June 30, 1992 as a negative number in Box 14
of the W-2 for 1993 earnings, and (2) by reducing 1993 wages by
the same amount in Boxes 1, 3 and 5. The payroll system would
make all computations from the net amount of wages in the usual
manner so by the end of 1993 employer's and employees' wage and
tax reports and returns would be correct. There would be no need
to issue corrected 1992 information reports and tax returns
except for 1992 recipients no longer on the 1993 payroll.
Example: The 1993 W-2 for an employee who received $1,000
educational assistance deemed taxable in 1992 and who earns
$40,000 in 1993 would show $1,000 1992 educational assistance as
a negative figure in Box 14 and $39,000 in Boxes 1, 3 and 5.
If educational assistance is not restored, or is restored only
prospectively, the 1992 compliant employer need do nothing but
the non-compliant must correct its records by adding educational
assistance (not formerly reported) to Box 14 and to taxable
wages.
Example: The 1993 W-2 for an employee who received $1,000
educational assistance that was not deemed taxable income in 1992
and who earns $40,000 in 1993 would show $1,000 1992 educational
assistance as a positive__XljgTJre in Box 14 and $41,000 in Boxes 1,
3 and 5.
We most emphatically urge you and the members of the
subcommittees to
mechanisms in the
include authorization of these correcting
legislation that restores the tax break for
ducational assistance.
RDW/jd>
187
American Society for Payroll Management
P.O. Box 1221, New York, NY 10025
212-662-6010
Survey on Education al Assistance
ASPM conducted a blind survey among a stratified sample of its members in
March to determine members' reactions to the 1992 change in tax status of
employer-provided non- job-related educational assistance. Such payments
were deemed taxable income after June 30, 1992 when the IRC sec. 127
exclusion expired. Fifty respondents took part in the survey, which is
tabulated on page 2. The number of employees on the respondent's payrolls
ranged from 110,000 to 140 and totalled 788,982 employees. The results of
the survey showed that:
1. Educational assistance is widely available . Out of the total
number of employees represented in the survey, 677,991 (86%) were eligible
for all types of educational assistance [Question 1. 11. Reimbursements
were made to 41,442 employees, representing 6% of all eligible employees
[QI.2].
2 . Educational assistance isn't restricted to iob-related courses .
Only 8 (16%) of respondents reported this as their company's policy
IQ1.3.a-c.l. Respondents reported that tuition reimbursement for courses
taken in 1992 amounted to $13.6 million (QI.4) but that $2.7 million (19%)
was deferred for payment in 1993 when, presumably, they expected the tax
status would be stabilized (QI.Sl.
3. Compliance with the tax status change was poor . The division between
employers who complied with the tax status change and those who did not was
23 (46%) and 27 (54%) respectively [QI.6]. Compliance was not immediate,
as 8 of the 23 compliant respondents (35%) reported that they waited for
relief until November and December and then complied [Qll.ll.a-bl.
4 . Educational assistance to higher-paid employees is not the rule .
Respondents reported on average that 90% of their reimbursements went to
employees who earned less than the 1992 $55,500 social security taxable
wage base, and 97% earned less than the $130,200 Medicare taxable wage base
[Q11.12.a-b. ) .
• •»
188
American Society for Payroll Management
March 1993 Survey
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189
Statement of Louis Nii&ez, President
The National Puerto Rican Coalition
Hearings on Selected Aspects of Welfare Reform
Committee on Ways and Means
Subcommittees on Select Revenue Measures and Human Resources
AprU 30, 1993
Congressman Rangel, Congressman Matsui, and members of the Subcommittees on
Select Revenue Measures and Human Resources, I wish to thank you for allowing me the
opportunity to provide you with the National Puerto Rican Coalition's (NPRC) views on
selected aspects of welfare reform, the effectiveness of the Earned Income Tax Credit
(EITC) and the Targeted Jobs Tax Credit (TJTC) in helping to reduce the high poverty rate
within the Puerto Rican community, and the need for job-related incentives to distressed
areas. The National Puerto Rican Coalition is a membership association composed of over
five hundred Puerto Rican community-based organizations and leaders. NPRC's goal is to
further the social, economic and political well-being of the more than six million Puerto
Ricans throughout the United States and Puerto Rico.
To begin, I would like to make three brief comments about the Puerto Rican
community:
1. As United States citizens, Puerto Ricans migrate freely
between the mainland and the Island — maintaining
close familial and economic ties to each;
2. Ninety five percent of all mainland Puerto Ricans live in
urban areas and 75% live in central cities, representing
the most urbanized ethnic group in the US; and
3. Puerto Ricans are nearly three times as likely to live in
poverty, drop out of high school at a rate exceeding 50%
in some major cities such as New York and Boston, have
home ownership rates that are one-third the national
average, and suffer from AIDS and substance abuse in
extremely high numbers when compared to the general
population.
POVERTY WITHIN THE PUERTO RICAN COMMUNTTY
Although significant numbers of Puerto Ricans in the United States have entered the
economic mainstream, the fact still remains that the current poverty rate of 40% among
Puerto Ricans is nearly three times the national average. The unemployment rate for
Puerto Ricans is also higher than that of any other Hispanic communities. This social
phenomena deserves national attention and special concern.
Concentrated in cities that have suffered a collapse of the industries that employed
them; the breakdown of family and community links, as well as the ensuing isolation of
individuals in increasingly smaller family units and the deterioration of their living
environment; circulatory migration to and from the island of Puerto Rico, coupled with the
parallel economic and social crisis there; and the lack of institutions to perform the binding
role that the Churches performed in the African-American communities - all these factors
have contributed to the deterioration of our social and economic network, and makes the
Puerto Rican case specially troubling and deserving of attention.
A demographic profile of the Puerto Rican community reveals the following sobering
statistics: Puerto Rican labor force participation is the lowest when compared to other
Hispanics and the general population; during 1990, the unemployment rate for Puerto
Ricans rose by 23 percentage points; Puerto Rican youth experience a particularly high rate
71-854 0-93-7
190
of unemployment; in 1990, the median money income for mainland Puerto Ricans was
$16,200, the lowest in the nation; and fmally, Puerto Rican children are the poorest in the
nation.
Puerto Ricans also have the highest rate of families living below the poverty line.
In 1991, the rate for Puerto Rican families was 39.7%, an increase of 22 percentage points
from the previous year. The high poverty rate among Puerto Rican families may be related,
at least in part, toMw high proportion of families maintained by females without a spouse
present. In 1990, 64.4% of the Puerto Rican families maintained by a female without a
spouse present lived in poverty.
THE IMPORTANCE OF THE ETTC FOR THE PUERTO RICAN COMMUNITY
The President's proposed expansion of the Earned Income Tax Credit (EITC) would
raise millions of Puerto Rican working families closer to, or above, the poverty line because
it is one of the single largest anti-poverty initiatives in recent memory. In fact, families of
up to four people that have a full-time worker would no longer be poor if the family also
receives food stamps'. The proposal also would help offset the effects of the proposed
energy tax on low-income working Puerto Rican families, ensuring that the tax does not
push those families deeper into poverty.
Low-income Puerto Rican families who are working will be assisted by the EITC
because it is a tax credit for families that work, live with their children, and have low or
moderate incomes. The EITC is a "refundable' credit, which means that even woricing
families whose incomes are too low to owe income tax receive it.
Because only working families qualify for the EITC, it will encourage Puerto Ricans