On January 23, 2019

Paid family leave would add to state un-affordability

By Rob Roper

As a result of the November 2018 elections, Vermont Democrats and Progressives achieved veto-proof majorities in both chambers of the Legislature. Their first priority flexing this new muscle is to pass a mandatory, government-run, paid family leave program that will require a new payroll tax. This proposal demonstrates exactly why Vermont is an unaffordable, unfriendly place to live and do business.

The proposal, a version of which Gov. Phil Scott successfully vetoed last session, would mandate all Vermont workers begin paying a new 0.93 percent payroll tax, which would fund a government-run insurance program providing 12 weeks of paid leave at 100 percent of salary for new parents or those dealing with a family illness.

Why mandatory? Because, according to news reports, “they [Speaker Mitzi Johnson, D-Grand Isle, and Sen. Tim Ashe D-Chittenden] said that a paid family leave program shouldn’t be voluntary, because it wouldn’t be able to attract the participation required to make it affordable.”

So, basically, the majority party leaders want to impose a new payroll tax on Vermont workers and create a new financial and bureaucratic burden for Vermont businesses to implement a new government program that people, by their own admission, don’t want. This is why Vermont is unaffordable for working people and has a national reputation as a terrible place to do business.

The median annual household income in Vermont is $74,426, which means the new tax will cost that household budget $692 a year for a benefit most wouldn’t sign up for and don’t need.

Not mentioned in any of the media coverage, it will create an uncalculated new cost of doing businesses for Vermont employers, who will now have to spend time and resources tracking and reporting employee data to the state in compliance with the law. It’s worth noting that many Vermont businesses already offer some form of paid leave, either formally or informally. Those that don’t, tend to be small, struggling businesses that genuinely can’t afford to do so. Forcing them to do so will be a major hardship.

The program will also increase state bureaucracy necessary to run the new government program. In 2017 the Joint Fiscal Office scored the original paid family leave bill, H.196, estimating that the administrative costs of running the program would consume 7.5 percent of benefits, and will require a new $2.5 million IT system, and we all know how well the state does with new IT systems!

Governor Scott proposed an alternative Paid Family Leave program in partnership with New Hampshire that would be both voluntary for private businesses and run through a private insurance company rather than the state. This is a far better – and much fairer  –  alternative.

Critics of the governor’s plan say that his proposal will be more expensive for participants. Yes and no. Yes, it would be slightly more expensive for those who volunteer to participate. But, for the majority of Vermonters who choose not to participate in the program it will be much cheaper – as in zero. This is fair. Those who want the program will pay to support it and benefit from it. Those who feel their scarce resources would be put to better use elsewhere would be free to invest as they see fit. But, again fairly, they won’t benefit from the leave program.

The fact that the governor’s proposal would utilize an existing, private insurance provider that is expert in managing programs like this means that the state would not have to incur the unnecessary and inefficient expense of “reinventing the wheel” within an expanded state bureaucracy that is, frankly, not expert in running insurance programs. The total cost of this system would undoubtedly be less than the mandatory tax scheme.

Paid family leave benefits are certainly a good thing. The employers that are able to offer such benefits create for themselves a competitive advantage in hiring and retaining the best employees. But this comes at a cost that the employer and the employee, and they, not the Legislature, are in the best position to determine if this benefit makes sense for them.

Rob Roper is president of the Ethan Allen Institute. He lives in Stowe.

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