How This Governor’s Emphatic Veto of State Income Tax Thwarts Mandate for Paid Family Leave

COMMENTARY Jobs and Labor

How This Governor’s Emphatic Veto of State Income Tax Thwarts Mandate for Paid Family Leave

May 13, 2019 3 min read
Rachel Greszler

Senior Research Fellow, Roe Institute

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
Alongside his signed and dated veto, Sununu, a Republican, wrote: “No Income Tax. Not Now! Not Ever!” Shannon Finney / Contributor / Getty Images

In bright red, all capital letters, New Hampshire Gov. Chris Sununu slapped a big “VETO” on the Democrat-controlled legislature’s bill to implement a tax on workers to pay for a government-administered paid family-leave program.

Alongside his signed and dated veto, Sununu, a Republican, wrote: “No Income Tax. Not Now! Not Ever!”

New Hampshire is one of only seven states across the U.S. that does not impose a state income tax on its residents.

By vetoing the bill, Sununu protected New Hampshire workers from a 0.5 percent tax that would have cost the average worker $267 per year. 

That tax would have gone toward a government-mandated paid family-leave program providing workers with up to 12 weeks of paid family or medical leave covering 60 percent of their wages. 

In reality, covering the leave that workers say they need would require about five times the proposed 0.5 percent rate ($1,333/worker).  To date, paid family-leave taxes in other states have stayed below 1 percent of pay, but that’s largely because the programs lack awareness and accessibility. In New Jersey, only 1 percent of workers who were eligible for the program actually used it. 

There’s widespread support for paid family leave across the U.S., but that support plummets when it comes to the costs and tradeoffs that would come with a federal paid family-leave program. 

That’s important because when the government sets the rules—instead of letting employers and workers design policies based on their own terms—a paid family-leave program is far more likely to have unintended consequences and excessive costs. 

Mandated family and medical leave can result in hiring discrimination against young women. Economic studies show that California’s and New Jersey’s state-based paid family-leave programs increased unemployment rates for young women.

Moreover, when mandated, paid family leave reduces women’s likelihood for promotions and their relative earnings.

When the government sets the eligibility criteria and instills the notion that paid family leave is free, far more people are likely to take leave. That has real consequences for employers and the products and services they provide.

In Denmark, a generous one-year paid family-leave program for nurses led to a rapid and persistent 12 percent decline in nursing employment, a 17 percent increase in in-patient readmissions, an 89 percent increase in newborn readmissions, a delay in technology adoption, and a 13 percent increase in nursing-home mortality over the three-year period following enactment.

Those unintended consequences are why Sununu and other policymakers are looking for ways to expand access to paid family leave by giving workers and employers more options instead of higher taxes and more restrictions.

Sununu and Vermont Gov. Phil Scott, a fellow Republican in a neighboring state, have a proposal that would let workers and employers choose whether or not they want to opt into a state-established, but privately administered paid family-leave program. The estimated cost would be $200 to $285 per worker per year.

Another way to accomplish the equivalent without the state getting involved at all—and thus saving taxpayers potential startup and administrative expenses—would be to allow private employers to band together to form so-called “association” insurance plans covering short-term disability or paid family-leave plans. 

This structure exists, with limitations, for association health insurance plans

Another option, at the federal level, is to pass the Working Families Flexibility Act that would let lower-income hourly workers choose whether they want to receive time-and-a-half of paid leave or pay when they work overtime hours. 

Although public sector workers are allowed to make that choice, private-sector workers currently cannot.

Congress could also let workers tap their retirement savings accounts without penalty to use for paid family leave. 

A combination of options that makes it easier for employers to offer paid family leave and easier for workers to take it is the right approach, because a one-size-fits-all government program simply cannot meet workers’ and employers’ needs in the way that programs designed on their own terms can.

This piece originally appeared in The Daily Signal