IRS

Veterans may face yet another employment hurdle

October 28, 2013: 11:35 AM ET

A tax credit that offers companies incentive to hire veterans is set to expire at the end of the year, potentially putting a damper on a growing -- and fragile -- segment of the American working population.

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FORTUNE -- When President Barack Obama called on Congress to help military veterans make the transition to civilian life in a speech at the Washington Navy Yard in August 2011, unemployment for veterans stood at 8.6%; 12.4% for the nation's newest vets.

The president proposed a "Returning Heroes Tax Credit" for companies that hire unemployed veterans. "Our companies need skilled workers like our veterans to grow, and there's no reason why we can't connect the two," he said at the time.

Since being signed into law with bipartisan support in November 2011, unemployment among former members of the military has declined. According to the September unemployment figures released from the Bureau of Labor Statistics, 6.5% of veterans are unemployed, compared to 7.2% of all Americans.

But the tax credit, which gives companies up to $9,600 for hiring a veteran, is set to expire at the end of the year.

President Obama called for the credit to become permanent as part of his proposed fiscal year 2014 budget because "no veteran should have to fight for a job at home after they fight for our nation overseas," according to an April 2013 White House release. But because Congress hasn't passed a comprehensive budget since 2009, that proposal has gone nowhere.

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Senator Richard Blumenthal of Connecticut, a Democrat and former Marine Corps reservist, says he plans to introduce a bill in the next few weeks that may do the next-best thing: extend the tax credit until December 31, 2016, which he considers "politically more doable."

Despite the improvement in the unemployment rate among veterans, the tax credit for companies that hire them, Blumenthal says, is "more necessary than ever."

He's right.

While the veteran unemployment rate has fallen since the tax credit became law, its path has been rocky and unpredictable. In the first four months of 2013, for instance, the veteran unemployment rate swung from 7.6% to 6.9% to 7.1% to 6.2%, according to the BLS. "There hasn't been a large enough dent in the [unemployment] number or large enough progress that we can say we're on a pathway to reaching zero," says Derek Bennett, chief of staff of Iraq and Afghanistan Veterans of America (IAVA).

The recent reduction in the veteran unemployment rate hasn't been spread equally among veterans. Unemployment among the nation's newest veterans -- those who have served since September 2001 -- was 10.1% in September, up from 10% in August and 9.7% the year prior, the BLS says.

Reducing unemployment among younger veterans might become even more challenging in the coming years as their numbers swell. The deescalation of American involvement in Iraq and Afghanistan will send thousands of members of the military back into civilian life, as will the $54 billion that's supposed to be slashed from the Defense Department's 2014 budget as part of the government's budget sequestration process. The Pentagon's long-term budget is set to shrink by $500 billion. In a speech in July, Defense Secretary Chuck Hagel said the budget cuts could force the department to reduce the Army's ranks by 100,000. That's on top of the 80,000 soldiers it plans to lose by 2017 as it moves away from a wartime high. Likewise, the Marine Corps could shrink by as many as 100,000 due to the sequestration cuts. (The Defense Department said it could not put a specific number on how many individuals will likely exit the military in the coming year because such a figure would be speculative.)

It's hard to determine the effect the tax credit has had on veteran hiring. The boost in employment could easily have to do with greater public awareness of veterans issues, companies' individual veteran hiring initiatives, and the gradual recovery of the economy overall. An Internal Revenue Service spokesman said the agency could not provide data on how many times companies have claimed the tax credit for veterans. The Working Opportunity Tax Credit that companies claim for veterans is also used when employers hired other categories of employees, and the IRS doesn't break the tax credit down by sub-group.

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IAVA's Bennett says he would like to see the tax credit increase from its current range -- up to $5,600 for hiring unemployed veterans and up to $9,600 for hiring disabled unemployed veterans -- so it's more monetarily significant to companies -- especially large ones. Blumenthal's proposal would keep the dollar amounts the same, and he says he's heard from business owners that the tax credit serves as an extra incentive to consider veteran job applicants.

Extension of the veterans hiring tax credit should have good chances with Congress. It gained support from both parties in the past. And benefits for veterans' families represented the only sliver of common ground for Democrats and Republicans during the recent partial government shutdown.

As Blumenthal puts it: "I can't imagine anyone being against it."

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