Paid Family Leave Hits an Ethical Snag

April 19, 2019

By David Flemming

Those Vermont legislators committed to paid family leave regardless of cost could soon be faced with an unenviable choice. They can either tax extremely low income earners who don’t earn enough to qualify for the benefit (you need to make over $11,000 annually to qualify), or they can exempt low income earners from the payroll tax that funds the program, and instead take an even bigger chunk out of the paychecks of Vermonters making more than $11,000/year.

On April 17, the Senate General Committee heard testimony on the mandatory Paid Family Leave bill from Douglas Farnham, Director of Policy and Tax Department Economist at the Vermont Department of Taxes. Farnham suggested that Sen. Michael Sirotkin (D-Chittenden) and House members who voted for the bill had overlooked the plight of those who don’t have a high enough income to qualify for Paid Family Leave, but would be forced to pay into program anyway.

Senator Sirotkin asked Farnham, “The people who don’t qualify right now, is that a very small number? The threshold ($11,000/year) is very low.” Sirotkin seemed skeptical that paid family leave might not be affordable for some Vermonters.

Farnham’s response was far from reassuring. “We have a large number of low income Vermonters in Vermont. The data is a little bit difficult to get at, because we don’t know their hours and their annual earnings.” Since hours worked may go into determining how much you pay per paycheck, the lack of this information should throw up warning signs to legislators.

Vermont’s Comprehensive Annual Financial Report (CAFR), states that there are 110,024 tax filers who report less than $10,000 a year in income. This is 29.63% of all tax filers. In other words, about a third of all those who earn income in Vermont, and the poorest third at that, will be disqualified from participating the Paid Family Leave program while simultaneously being forced to fund it.

Farnham went on to say that exempting extremely low income workers from the tax would be “extraordinarily complicated.” Meaning that if a revised bill were to include a low-income exemption, the 0.55% payroll tax estimate for everyone else will be even higher, as will be the cost of the bureaucracy necessary to monitor and implement the program.

Wasn’t the purpose of making the program mandatory to generate cost savings? Anything that is “extraordinarily complicated” won’t come cheap.

Given how untenable a low income exemption for paying into paid family leave would be, Farnham concluded by saying that “I have no recommendation for a way to insulate low-income workers from the program.” If Vermont has to harm the poorest among us to pay for a program, that should be more than enough reason to reject a mandatory paid family leave program.

Paid leave advocates are faced with two options that would harm Vermonters in different ways. But there is a third option: reject paid family leave. Recognize that even the nicest sounding legislative “solutions” often harm those they intend to help.

David Flemming is a policy analyst at the Ethan Allen Institute.

{ 1 comment… read it below or add one }

Doug Richmond April 20, 2019 at 2:35 am

Just like doubling the fuel oil tax on 500 low income families, so that some other single low income can get
free house insulation – to lower their fuel oil bills.

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