2020 Election, Ari Armstrong, Business/Economy, Exclusives, Proposition 118, Taxes

Armstrong: Payroll taxes hurt workers; the case against Prop 118

With Proposition 118, Colorado voters will decide whether the state imposes a new payroll tax to fund a paid medical leave program. But payroll taxes damage the labor market and hurt especially lower-income workers. Besides, people can handle their own medical leave needs without a new government program.

For detailed critical analysis of the measure, see Dave Davia’s column and Ross Kaminsky’s radio discussion with Lisa Strunk. Here my aim is to discuss the relevant issues in more-general terms.

Voters should keep in mind two basic facts: First, you can’t get something for nothing. Second, usually people can solve their own problems without government intrusion. How do these points apply to the issue at hand?

A government-run medical leave program may sound great if you consider only the benefits, but it comes at a cost. Here the cost involves not only the new payroll tax but the added bureaucratic red tape that employers have to deal with.

Eventually the payroll tax would cost people 1.2% of their pay, split 50–50 between employers and employees. For someone pulling down a modest $40,000 per year, that amounts to $480 in total extra taxes per year. That’s a lot of money for someone struggling to make ends meet.

Ah, but the employer pays half of that. But that money doesn’t come out of thin air. It comes out one of four things: Slower pay hikes, which directly costs employees; higher prices for customers, which indirectly costs employees; slower expansion of the business, which costs potential new employees; or lower profits for owners, who then spend and invest less in the economy.

Part of what this payroll tax does is transfer wealth from low-income workers who do not want children and who have low health risks to middle-income workers who do want kids or who have higher health risks. That’s stupid and unfair even from Progressive premises.

If low-income workers think it’s worth it to spend several hundred dollars per year on paid leave insurance, why not let them choose whether they want it? But of course that would not do for Progressives, who view low-income people as fundamentally stupid and incapable of making their own decisions without the “help” of politicians and bureaucrats.

It’s not like government is the only entity capable of setting up paid leave. Most companies offer paid sick days as a normal part of their compensation package, and some companies offer very generous family leave benefits.

In addition to providing paid personal days, my wife’s employer pays for private short term and long term disability insurance (this includes pregnancy and child delivery) that kicks in after two weeks at 60% of regular pay. Before her employer paid for this insurance, my wife paid for comparable insurance on her own for $24 per month.

Another possibility is that people self-insure simply by saving some extra money for tough times. I know personal savings often is mocked in today’s world of inflation, government bailouts, and consumption-centric thinking, but I remain a big fan of it.

In short, Prop. 118 offers a government “solution” for a problem that people interacting voluntarily in the market already address.

The main concern here seems to be for lower-income workers who do not have reliable paid leave. This has been of heightened concern in the current pandemic, when we don’t want people infected with the coronavirus showing up at work. That means that what we’re looking at is something that functions largely as a welfare program. But a payroll tax is a ludicrously stupid way to “help” low-income workers. Stripping money off of a person’s every paycheck is extremely harmful, especially to such workers.

If you insist on such a welfare program, a far better way to accomplish it would be to finance a means-tested insurance voucher through the general fund or through a taxpayer-approved special tax. But, again, Progressivism is not fundamentally about choice and self-empowerment; it is fundamentally about control and the bureaucratic state.

I trust individuals over politicians and bureaucrats, and that’s why I will be voting no on Prop. 118.

Ari Armstrong writes regularly for Complete Colorado and is the author of books about Ayn Rand, Harry Potter, and classical liberalism.  He can be reached at ari at ariarmstrong dot com.


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