Despite projected $17B surplus, DFL pitch payroll tax hike

Despite a projected $17.6 billion surplus, Gov. Tim Walz pitched a future payroll tax hike to fund paid family and medical leave in his soon-to-be released budget plan.

Walz said $1.7 billion of surplus seed money would start the program, funded in the future by a payroll tax.

The DFL hold a political trifecta and say Senate File 2 is a top priority.

The bill aims to give all workers up to 12 weeks of leave for family care, pregnancy and serious health issues.

“This Paid Family and Medical Leave program would provide myriad benefits for the people of Minnesota,” bill sponsor Sen. Alice Mann, DFL-Edina, said in a statement. “It supports the mental health of parents, physical health of a mother and child, and helps families find economic stability. It’s also been shown that businesses in states with Paid Family and Medical programs benefit from the program with lower rates of employee turnover and increased productivity. It’s time for us to make it happen in Minnesota.”

The bill defines family as a spouse, parent, or sibling, but also anyone “whose association with the employee is equivalent of a family relationship,” which includes a sibling’s child, long-term roomates, and stepchildren.

The Minnesota Chamber of Commerce, which represents more than 6,300 businesses and half a million employees, opposes the plan.

Lauryn Schothorst, the Chamber’s director of workplace management and workforce development, says that 80% of members offer paid leave in some form, according to a 2022 annual business community survey conducted last summer.

Schothorst said that the proposed program would place a new tax on employers that could cost almost $1 billion annually.

“Most importantly, this proposal creates a mechanism for an employee to be away from their job for up to 24 weeks each year – that’s 44% of a working year – not yet to say exactly how stackability with proposed paid sick and safe time mandates and existing FMLA obligations will be reconciled,” Schothorst said in a written bill testimony. “In addition to the direct cost on employers, the proposal will take years of development and over 300 state FTEs to start, implement, and administrate.”

Schothorst said the bill language already increased the planned payroll tax rate from 0.6% to 0.7%, and there’s no cap to the payroll tax.

“Businesses can’t adequately prepare for this type of uncertainty and tax liability, as we recently saw with the Unemployment Insurance Trust Fund solvency crisis,” Schothorst said.

“The Chamber and its partners supports an approach that limits additional cost burdens and mandates on employers who are doing their best to keep their doors open and Minnesotans employed.”

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