Paid FMLA Opens Door to More Tax Hikes

Connecticut’s proposed $462 million-per-year paid family and medical leave program is “revenue-neutral,” say advocates, despite its potentially open-ended tax on all workers and likely need of at least 120 new state employees to run it.
The Connecticut legislature’s Labor Committee last week approved SB 221, which would allow employees in companies of three or more workers to take up to 12 weeks of fully paid leave a year to care for their own illness or the illness of a number of extended family members.
The paid FMLA tax, far from revenue-neutral, is actually pricey:

• A study conducted by the pro-paid family leave Institute for Women’s Policy Research said the state would need to deduct—tax—at least $440 million a year from workers’ paychecks to keep the program solvent.
• It’s very likely the $440 million won’t be nearly enough.
• The institute also said it would cost taxpayers $20 million in annual administrative costs to fund the 120 new state employees needed to run the program.
• State startup costs alone could be about $13 million.

Advocates say the startup costs could be “borrowed” from the state and paid back later.
But that’s much like the character Wimpy from Popeye cartoons–always willing to pay tomorrow for a hamburger today.
The state-borrowed funds, say proponents, would be paid for by taxing Connecticut employees for a year before the program goes into effect.
Sadly, however, Connecticut has a poor track record when it comes to safeguarding dedicated streams of revenue for their intended purposes, or for making good on long-term obligations to its own employees.

Employee Tax

How much will workers in Connecticut be taxed, on an ongoing basis, for the program?
That’s one of the most interesting questions raised by the bill: It allows workers to be taxed as much as needed to keep the paid family leave program solvent.

The Institute of Women's Policy Research projected it would require employees to give only 0.5% of their pay to fund the program.
But that could lead to financial disaster.
For example, an employee making $52,000 a year would have to pay only $260 into the program, yet could collect up to $12,000 per year in paid leave benefits.
It’s very likely the program would be financially upside-down from the start.
And with the open-ended ability of the state to keep the program afloat by raising the tax on workers, the program could become a financial morass.
Despite advocates’ claims about the paid family and medical leave program, there really is simply no such thing as a free lunch.

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For more information, contact CBIA’s Eric Gjede (860.244.1931) | @egjede