Family Values @ Work

Why Tax Credits for Business Won’t Get Us Paid Leave

Why Tax Credits for Business Won’t Get Us Paid Leave

February 21, 2017

It’s great to see people from all political camps talking about paid leave. Caring for babies, recovering from surgeries, and helping ailing partners or parents affects nearly everyone. But the devil is in the details and some of these proposals are devilish indeed. The question to ask is: will this proposal help me care for myself or my loved ones without falling over a financial cliff? Will it reach those who need it the most?

Senator Deb Fisher has reintroduced the Strong Families Act, which would provide tax credits to employers who offer paid family leave. An employer who provided at least two weeks paid leave at full pay to full-time employees would be able to claim a credit on their business income taxes of 25 percent of the amount paid.

Here’s the problem: tax credits only exacerbate disparities in access to paid leave by failing to reach the people who most need it, while using tax dollars to subsidize big business.

Experience shows that the money from a proposal like Senator Fisher’s would largely help companies that have already made investments in paid family leave. Even conservative thinkers question the efficacy of such an approach. For example, American Action Forum last August had this to say: “[I]t is not clear whether the tax credit in the Strong Families Act would lead to many businesses starting to offer paid family leave or if it would simply subsidize employers who are already providing the benefit. From the [National Consumer Panel] data, we know that highly compensated workers in large businesses are most likely to have paid family leave. This means that the tax credit would benefit those large employers and ensure that the high-wage workers continue to receive this benefit.” AAF’s president, Douglas Holtz-Eakin (former CBO director under Bush), noted that tax credits like this have no history of bringing about policy changes.

In particular, employers of low-wage workers have no record of changing behavior based on future tax breaks that amount to a small fraction of proposed cost. The Strong Families Act also explicitly excludes part-time workers. Tax credits for business will not produce leave for low-wage and part-time workers, who are disproportionately women and people of color and least likely to have savings to fall back on.

At the same time, these workers will likely foot the bill for company tax credits. Ultimately, somebody has to pay for the lost revenue to the government. The average worker, including those working part-time and with low wages, will either lose more income to taxes to offset the credit, or find basic government services at risk. In either case, working people are the ones who pay the price for such tax credits without benefiting from them.

Many small businesses are partners in the coalitions working to win family and medical leave insurance programs. They prefer a social insurance program like the FAMILY Act, which pools small contributions to provide wage replacement while workers are out on leave. A new report by Main Street Alliance, for example, points out that a social insurance program helps small businesses compete with large ones and helps provide coverage to the owners themselves, with minimal cost or inconvenience.

There’s one more point to consider: we won’t get annual bites at this apple. It’s been 24 years, after all, since the last time a bill related to leave, the Family and Medical Leave Act, became law. If conservatives manage to push through a proposal like Senator Fisher’s, many lawmakers will consider that they have checked off the work and family box and can move on to something else.

All workers need time to care, and the financial means to do it. Tax credits for businesses won’t get us there – and, if passed, this proposal is likely to delay passage of a national fund that can deliver.

By Ellen Bravo and Rhode Island State Senator Gayle Goldin