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 percent 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 percent 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 percent for individuals earning less than $38,700 up to 8.75 percent for those earning $195,450 or more. So, when you tack a 0.93 percent payroll tax on top of these rates, you have a de facto 28 percent income tax rate increase on Vermont’s lowest earners, those below the $38,700 income level. However, when you apply that 0.93 percent to folks paying 8.75 percent, the highest income tax bracket, it’s less than 11 percent increase — possibly much less than 11 percent 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.