Speaker Gideon’s paid leave plan illustrates lawmakers’ propensity to tax and spend, ignore free-market solutions
The First Session of the 129th Maine Legislature has been filled with proposals that would harm the financial well-being of Mainers and small businesses alike. LD 1410, a paid family and medical leave proposal sponsored by House Speaker Sara Gideon, is just one example of lawmakers’ propensity to tax and spend instead of exploring free-market solutions that would actually benefit Mainers. LD 1410 would impose a new payroll tax on the working class in Maine and reduce productivity in small businesses to establish a paid medical leave program administered by the Maine Department of Labor. To be clear, a new payroll tax is being proposed despite the fact that there are alternative approaches to solve this problem that do not involve new mandates or tax increases.
While there are several iterations of paid leave bills in the Maine Legislature this session, LD 1410 would allow employees to take paid family leave for up to 12 weeks and medical leave for 20 weeks, funded through a new 0.55 percent payroll tax. Employees would be required to work a minimum of 26 weeks per year to be eligible for benefits. Approximately 564,600 individuals would be eligible to take advantage of paid family or medical leave under the proposal. It should be noted that the first $12,000 an individual earns would be exempt from the payroll tax. Thus, the language of LD 1410 would require most employees in the state contribute 0.55 percent of their weekly paycheck to the “Family and Medical Leave Insurance Fund”.
The revenue raised from these employee contributions would fund the program and provide wage replacement benefits to Mainers that take paid leave. This process, and the administration of benefits, would be overseen by the Maine Department of Labor, meaning taxpayers would have to contribute more of their hard-earned money if the proposed tax does not cover the full costs of the program.
During the public hearing on the bill, it was found that a 0.55 percent tax on employees’ paychecks would not be enough to ensure the program is solvent. To cover the estimated $153 million price tag, the proposed tax would need to be increased to 0.75 percent of worker earnings. Speaker Gideon justified the proposed tax by stating that it would only be “a few dollars each paycheck for the average Maine worker.” While this may be accurate, employees who earn the state’s average weekly wage of $844 would have approximately $240 withheld from their paychecks annually if a 0.75 percent payroll tax is imposed. Not to mention, this program would be harmful to low-income workers – an individual who earns $25,000 annually would be required to pay almost $100 into the program regardless of whether they utilize the benefits. These funds would be more effectively spent by the individual who earned them, not by a government bureaucracy.
According to a report released by former State Economist Michael LeVert, the proposed program would be utilized by few employees in the state. Approximately 11.4 percent of employees in the Northeast (Maine, Connecticut, New Hampshire, Vermont, Massachusetts, Pennsylvania, New Jersey, New York and Rhode Island) take leave for a reason allowed under LD 1410. This figures to be 64,400 individuals in the state of Maine. With a projected 50 percent take-up rate, or the amount of people who will utilize the program, the report estimates 32,200 people would take advantage of the paid leave program in LD 1410 annually. If more individuals utilize the program than expected, it could quickly become unsustainable.
The report acknowledges this fact and includes figures for a larger take-up rate. For example, if the take-up rate is 80 percent instead of the projected 50 percent, the program would cost almost $245 million. This would inevitably result in an increase in the payroll tax to cover the cost of the program, creating a larger burden on taxpayers. We estimate the payroll tax would increase to 1.2 percent of earnings if the state realizes an 80 percent utilization rate. Under this scenario, a Mainer who earns the state’s weekly wage of $844 would be required to contribute $383 annually to the program, and a Mainer who earns $25,000 would lose $156 of their earnings annually (again, regardless of program utilization).
In essence, LD 1410 is a glamorized income redistribution program that benefits few at the expense of the many. Only five other states provide paid family leave to employees through payroll contributions. These states are California, New Jersey, New York, Rhode Island and Washington. The policies differ from state to state, but the concept is the same; withhold earnings from all employees to pay for a paid leave program that only few will utilize. For example, approximately only six percent of those residentially employed in Rhode Island utilize the state’s paid leave program.
A large concern in the business community is how employers would fill the void left by employees that utilize the benefits outlined in the bill. Over 24,000 employers in Maine employ between 1-19 employees. Small businesses are typically reliant upon a small staff to ensure short and long-term goals are accomplished. It is already difficult to find permanent staff in Maine, and this bill would create additional burden because employers would be required to find temporary employees to fill the gap when an employee takes leave. LD 1410 would create for incentive individuals to take time off because they are required to pay into the Family and Medical Leave Insurance Fund. In other words, employees would be entitled to this time because they are contributing to the system, leaving small businesses in limbo.
A survey conducted by the National Federation of Independent Business (NFIB) to its members indicated that 81 percent were opposed to a “family and medical leave insurance program that is funded by employees.” Only four percent supported the idea and 15 percent were undecided. It is clear that businesses perceive this legislation as damaging to productivity and their bottom line. Lawmakers should seek the input from small businesses and the public to ensure their proposals are not harmful to workers and employers.
Instead of creating a government-run program, governors from both New Hampshire and Vermont are exploring a voluntary paid leave plan that would be administered through a private carrier called the Twin State Voluntary Leave Plan. Both states’ employees would be covered by the plan. Also, public and private employers would have the opportunity to opt-in as well to cover their employees. If an employer does not opt-in, individual employees have the choice to be enrolled in a plan as an adjunct to the state government employee plan. This would undoubtedly be a more viable option than mandatory payroll taxes regardless of program utilization, though it should be noted that negotiations of employee benefits are best left to employees and their employers, not politicians and government bureaucrats.
The benefit of the Twin State Voluntary Leave Plan is that the risk of insolvency falls on the insurance carrier(s) that are awarded the RFP contract, not the state or employees that pay into the system. This compact would likely spur a competitive market for public and private employers to choose from instead of allowing employees to be stuck with one government mandated plan. As more employers offer paid leave and individuals opt in to the program, a Maine market would likely be developed by insurance carriers to offer more comprehensive plans, giving employers and employees more choices.
It appears LD 1410 is merely an attempt at virtue signaling to progressive groups and activists instead of practical policy-making. This bill would harm both small businesses and employees while only benefiting the small percentage of individuals that would actually utilize the program. Instead of thinking critically about free-market solutions that work for both employees and employers, progressives in Augusta default to proposals that increase taxes on the working class in Maine.