UPDATE: The Council voted 5 to 8 to reject the mandate alternative and stick with the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. version, and then 9 to 4 to pass the tax version. It now goes to the Mayor for her signature or veto.
The Council of the District of Columbia gavels into session this morning to consider two options for paid family leave.
One, which the Council passed 11 to 2 on first reading earlier this month, imposes a 0.62 percent employer payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. beginning in 2019, to pay out a benefit beginning in 2020 of up to 90 percent of salary up to 150 percent of the minimum wage, then 50 percent of salary up to a maximum benefit of $1,000 per week, for a total of six weeks of paid family leave. Eligible individuals could also receive two weeks of paid medical leave for themselves, and eight weeks of paid parental leave. The program would not cover D.C. or federal government employees, although non-D.C. employees of D.C.-based companies would be eligible. The tax is structured as a tax on employers instead of employees because D.C. is prohibited from taxing out-of-state residents who work in the District.
An economic analysis of the tax version found that it would reduce GDP somewhat and employment very slightly, though it would increase women’s labor force participation. Chairman Mendelson worked for several months to get a better handle on economic effects, paring down a more generous version after analysts concluded it would require a 3 percent payroll tax to fund. (I testified to the Council just under a year ago on that version of the bill, saying as much and concluding that a tax at that level would wipe out all the benefits from D.C.’s recent tax reform.) Supporters say the new version is a good compromise.
An alternative, discussed conceptually for several months but presented in legislative form only yesterday by Councilmembers Evans (D) and Cheh (D), would instead mandate that businesses with more than 70 employees offer the same level of paid leave as in the bill, but would let those businesses decide how to pay for it. Businesses with fewer than 70 employees would get a $200 tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for every employee if they offer that level of leave. Supporters of the tax version say Evans’s alternative would be difficult to administer, it would put small businesses at a disadvantage, and that a payroll tax is a better way to subsidize the provision of benefits.
Mayor Muriel Bowser (D) hasn’t said whether she’ll sign or veto the proposal, and there’s strong support for passing something today. We’ll update here and on Twitter as we know more.
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