In the controversial 2023 state budget, the Maine Legislature opted to include a provision establishing a new statewide paid family and medical leave program. This program will be financed through a statewide payroll tax, with very few exceptions. Despite Gov. Janet Mills’ previous promises that she wouldn’t raise taxes, the bill was passed by the Legislature and signed by Mills herself last year.
Starting January 1st, 2025, Maine workers will experience a new 1% payroll tax to finance this program. The program’s structure will burden Maine workers and give the Department of Labor troublesome discretion to change the tax rate in the future. Hopefully, an emergency bill by Maine Rep. Josh Morris will intervene before Mainers suffer the full force of another unnecessary tax increase, all to support a program that most states don’t even have and would be more optimally provided by the private sector.
Starting in the 2023-2024 fiscal year, Maine deposited $25 million into the fund for this program to cover startup costs and administrative staff. Now that the program has been established, on January 1, 2025, Maine will start collecting a statewide 1% payroll tax to provide continued support to the fund. However, the program won’t accept family and medical leave claims immediately. It’s not until May 1, 2026 when the state will begin accepting and processing claims from workers to receive payments under the program.
Is it a coincidence that benefits become available just months before the next elections, and that the claims processing begins in the middle of 2026 rather than on January 1 of that year? Who can say?
The Department of Labor was given extensive latitude in interpreting and enacting the program, as the department sets both the compensation ceilings and the payroll tax rate. While the payroll tax will begin at 1%, the department is given the power to reduce or increase it based on program funding needs, but the rate cannot be higher than 1%. The tax rate will eventually be controlled directly by an unelected state agency, which flies in the face of the principle of “no taxation without representation.” What’s worse is that most Americans already pay more towards their payroll tax than their income tax.
Because Mainers will start paying the payroll tax on January 1, 2025 but can’t file claims until May 1, 2026, there will be a 16-month period where workers will pay into a system that no one can use yet. The total estimated taxes Mainers will pay into the program during that period will be approximately $448,000,000. The fiscal note attached to the budget bill estimated that Mainers would contribute $345,230,000 to the paid leave fund in the 2025-26 fiscal year and $360,074,200 in the 2026-27 fiscal year.
If Maine wants a paid family and medical leave program, there are far better options than the one established by lawmakers in the last budget. In 2021, New Hampshire established the Granite State Paid Family Leave Plan, which is structured much differently than Maine’s program. New Hampshire created a system to aggregate risk for individual purchasers, allowed a coverage plan contracted with Metropolitan Life Insurance Company to provide the coverage statewide, and offered a business tax credit for employers choosing to sponsor some part of their employees’ premiums.
This allows employers to choose whether to opt-in and supports them if they do. Instead of the state taxing every worker in New Hampshire by $600 annually, the New Hampshire plan establishes a private system with a capped $ 5-a-week premium. Even comparing the individual cost of this program, the New Hampshire plan costs participating workers a maximum of $260 a year, while Maine’s costs $600. Additionally, if the $260 is too much, they can opt out of the optional program. Meanwhile the average Mainer is stuck paying additional payroll taxes regardless of whether they use the program.
If Maine must implement a paid leave program, it should be styled much closer to New Hampshire’s program. But even more importantly, Maine should immediately cease the upcoming payroll tax. Paying exorbitant taxes into an unaccountable, government-run paid leave program is a recipe for disaster. If lawmakers don’t act, Mainers can expect wild swings in payroll taxes in the future.