Regressive Paid Family Leave Tax Hammers the Poor

February 13, 2019

by Rob Roper

The Paid Family Leave (PFL) program being discussed in the legislature this week will require a massive, $100 million-plus payroll tax, which is a tax on earned income. This is a very big number in and of itself. In 2016, for example, Vermonters paid just over $500 million to the State in total income tax receipts, so this is like an overall 20% income tax increase.

However, unlike the “progressive” income tax, the PFL payroll tax is a flat rate across all income levels. (PFL is a mandatory insurance program, like social security, and supposedly not a welfare program.) As a result, the poorest working Vermonters, those in the lowest income tax bracket, will get hammered with a de facto 28% income tax increase to pay for Paid Family Leave – a program most will never use.

Vermont’s four income tax brackets currently rage from 3.35% for individuals earning less than $38,700 up to 8.75% for those earning $195,450 or more. So, when you tack a .93% payroll tax on top of these rates, you have a de facto 28% income tax rate increase on Vermont’s lowest earners, those below the $38,700 income level. However, when you apply that .93% to folks paying 8.75%, the highest income tax bracket, it’s less than 11% increase — possibly much less than 11% because this does not take into account that there is a $150,000 income cut off for income exposed to the new tax, or the likelihood that when you get to those higher incomes folks often have non-wage income, such as investment, that wouldn’t be subjected to the tax.

This seems like an odd policy priority for a state that already boasts one of the heaviest tax burdens in the United States, and for a liberal state that is ostensibly looking out for the poor.

Rob Roper is president of the Ethan Allen Institute. 

{ 4 comments… read them below or add one }

Irma Nagle February 14, 2019 at 12:28 am

I would like to see more info on this. I am not supportive with what I have read so far.

How about Montpelier starts getting smart with what they have.
Not to change the subject, bit I have not seen any ethics Bill’s from there. When is accountability going to start happening?

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William L. Koch February 15, 2019 at 10:22 pm

Despite the tax being flat, it is clear that higher-earning Vermonters will pay more in absolute dollars. Moreover, lower income individuals have statistically poorer health, not to mention the birth rate decreases with income and education levels. Finally, expect amendments that increase the tax rate on higher earners in order to address the subject of Rob’s article. This is just another recipe for income shifting in a State that can ill afford it. Far better would be a simple mandate that all employers offer paid leave based on certain employment standards (full-time or part time, longevity at the job, etc.).

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Deanne February 16, 2019 at 3:58 am

Even better yet would be for the government to drastically cut taxes and let people take responsibility for themselves. They could be encouraged to set aside money for a “rainy day fund” instead of buying junk food and tattoos, so they have money for such times. Why is government the go-to solution instead of personal responsibility? Does no one realize how much money is wasted in the process of collecting, shuffling, and disbursing tax-collected money? It doesn’t all come back, and it also doesn’t get distributed justly. Often the people who honestly need help won’t take the money. It is the moochers who will seek as much as they can get. I know of several people right now who are using the system to their advantage, even though it means lying or manipulating the facts. Although I’m in N. H., I know and have worked with people in Vermont who have done the same, or similar, things.

My son worked for a small business in Vermont and for a time was in charge of hiring. He could not find people who were worth hiring, but he has some good stories…

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petemo February 16, 2019 at 10:54 am

“……. a liberal state that is ostensibly looking out for the poor”, ‘ostensibly’ being the operative. These people don’t care about the poor or anybody else. This is all about redistribution of wealth. Period. The wacky ‘Ocasio-Cortez’ factor at play. But then, who needs AOC when we have the likes of Leahy, Sanders, and Welch?

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