Eakinomics: Paid Vacation and the Reconciliation Bill
Get ready to hear a lot about the “Law of Reconciliation” (TRB), the tool Democrats hope to use to get key elements of President Biden’s political agenda to Build Back Better through Congress. At this point it is not yet clear what the specifics for the “human infrastructure” – child reduction, income tax relief, health insurance subsidy, childcare subsidy, subsidy for home nursing, etc. – will be proposed in the TRB.
In one case – paid vacation – we can be fairly certain that the proposal mirrors Congressman Neal’s Building an Economy for Families Act. It is based on the FAMILY Act, which provides for up to three months of vacation because they (a) have a serious state of health, (b) are caring for an immediate family member, (c) have a newborn or adopted child, or (d) have difficulties due to the foreign assignment of a family member in the army. The base benefit is approximately two-thirds of a recipient’s highest income in the past three years, with a minimum benefit of $ 580 per month and a maximum benefit of $ 4,000 per month in 2021. (Benefits are indexed thereafter.) The Congressional Budget Office ( CBO.)) Puts the 10-year price at 547 billion US dollars.
The original bill also provided for a 0.4 percent payroll tax, which was shared equally between employer and employee (just like Social Security and Medicare). While TRB likely won’t include payroll tax – why spoil the fun of selling goodies thinking they aren’t really free? – It makes sense to focus a little on the level of the tax rate. After all, for the average worker, this is the real effect of the program. You don’t have to take vacation for a long time, but you have to pay the tax every week.
As documented in previous AAF research on versions of the FAMILY Act, the percentage of eligible individuals who will actually use the program is the greatest source of uncertainty about the cost of the program (and, accordingly, the amount of payroll tax required to fund it ). “The admission rate”). In the United States, the primary law relating to family and sick leave is the Family and Medical Leave Act of 1993 (FMLA). It guarantees certain employees up to 12 weeks of unpaid, job-protected parental, family and sick leave. To be entitled to the FMLA’s 12-week occupational health and safety system, an employee must have worked for their employer for at least one year without interruption and have worked at least 1,250 hours that year.
Unfortunately, the FMLA is unpaid leave, so the take-up rate may not be indicative of conduct under a paid leave program. An alternative is to look at the experiences of a handful of states – California, Rhode Island, and New Jersey specifically – that have their own paid vacation programs. Unfortunately, the information is likely strongest for parental leave and less meaningful for sick leave and family leave.
Finally, in 2018, the Cato Institute conducted a survey to determine the likely take-up and length of vacation as part of a paid vacation program in the style of the FAMILY Act.
This is where things get interesting. The wage tax rate of 0.4 percent determined by CBO is exactly what AAF determined to cover the costs of the FAMILY Act based on state-level experience. In contrast, the tax rate of 0.85 percent cited by the Joint Committee on Taxation as the break-even tax rate corresponds to the estimated tax rate of AAF based on the takeover according to FMLA. In contrast, the Cato survey – the only information on exactly the program in the FAMILY Act – projects a significantly greater use of the services and requires a wage tax of 2.9 percent to finance them. For numerologists in the eakinomics field, the current Medicare wage tax rate is 2.9 percent.
Here’s my fear, in a nutshell: the paid vacation program is being sold to the public as no threat to the average worker, even though Congress will actually be loading a big new claim on the order of Medicare.
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