$1 billion paid leave tax threatens small businesses and jobs
Some 80 percent of the Minnesota Chamber of Commerce’s members already offer paid family leave to employees. Yet Gov. Tim Walz and DFL legislators plan to impose a new $1 billion payroll tax on all employers and employees to underwrite a massive state leave program and bureaucracy that would annually benefit less than 7 percent of the state’s workforce, according to a 2019 legislative analysis.
The tax would cost both employers and their employees, as American Experiment’s John Phelan pointed out in his Duluth News Tribune column.
It will mean a new 0.7% payroll tax on Minnesota’s workers, up from 0.6% in the previous proposal. Nominally, this will be split between the employer and the employee, like Social Security, with each paying 0.35%. But research shows that the incidence of payroll taxes like Social Security – who actually bears the burden regardless of what the law says – is borne entirely by workers in the form of lower wages. That is likely to be the case with paid family and medical leave.
The timing couldn’t be worse, particularly for small businesses surveyed by the News Tribune.
“I’m concerned that small-business owners are slowly but surely being eradicated. We can’t compete. We don’t have the marketing dollars and buying power in comparison to big companies,” said Carol Valentini, owner of Valentini’s Italian restaurants in Duluth and Hermantown.
Future plans to expand her Hermantown restaurant are at stake with the potential passing of the proposed workplace mandates, she said.
Duluth restaurants and businesses already know from experience that a mandated leave program comes with a significant cost to staff, owners and customers.
The earned sick and safe time ordinance Duluth put into place in 2020 has since impacted the bottom lines of its restaurants, which is offset by raising prices or cutting back expenses like employees and hours in order to continue to do business, [president of the Duluth Local Restaurant Association Tony] Bronson said.
The hospitality industry took another hit during COVID-19 shutdowns, and potentially face additional taxation if the proposed statewide workplace bills become law.
“Restaurants have survived, but not all of us,” Bronson said. “Food, liquor, energy, labor and taxes have all skyrocketed, piling on top of the industry after everything. It’s not a good time to take on another expense…”
Then there’s the administrative and enforcement side, a sizable, new state bureaucracy to be deployed to verify and oversee the paperwork for every employer and employee. This in a state already competitively falling behind its neighbors.
Valentini added, “Would you pay $25 for a burger? That’s exactly what will happen. Duluth is a tourist town. If it becomes too expensive, customers would go to Wisconsin where it’s cheaper.”
Compared to its neighboring states, Minnesota currently attracts less investment, talent and growth due to its high cost of doing business, as shown in the Minnesota Chamber’s annual 2023 Business Benchmarks publication.
The bottom line? Phelan sums it up this way.
Needless to say, the burden of complying with these regulations will rest most heavily on the state’s smaller businesses. To police this, as many as 400 new bureaucrats will be hired using an entirely new computer system: think MNLARS, or MNsure.
This proposal will significantly impact all Minnesota’s workers, from the tax to the restriction of their current medical and family leave programs. It will construct a very expensive, invasive, over-engineered hammer to crack a relatively small nut.