Roper: Regressive paid family leave tax hammers the poor

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.

Rob Roper is president of the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

Image courtesy of Wikimedia Commons/Jiri Sedlacek
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2 thoughts on “Roper: Regressive paid family leave tax hammers the poor

  1. ” and for a liberal state that is ostensibly looking out for the poor.”

    Really their NOT looking out for the poor or the hard pressed middle class working VT’er. This grand scheme of give away will benefit very few as a percentage of the population at great expense and more government growth. This is the whole problem in a nut shell. TOO MUCH GOVERNMENT.

  2. See they’ve just taken part of their raise in minimum wage, they do this all the time. They’ll have some more fees and taxes for the average citizen, just wait and see.

    And to add insult to injury any one can claim this benefit, you have 100k in the bank and don’t need it….you can still collect it. It’s a great benefit for those driving their BMW who like getting government freebies.

    Get Vermont affordable again…..then somebody can stay home as long as they like. Last I knew it took more than 12 weeks to raise a child, family planning, what are they teaching people?

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