The budget reconciliation bill recently enacted by congressional Republicans and President Trump extends the little-known 45S tax credit for employers who voluntarily offer paid family and medical leave to certain employees. While Republicans claim it will make paid family and medical leave more accessible, this poorly designed credit first enacted as part of President Trump’s tax bill in 2017, instead further lines the pockets of wealthy corporations and does nothing to put paid leave within reach for the millions of working people who continue to lack access.
Just 27 percent of workers in the United States have access to paid family leave at their jobs and only 43 percent have personal medical leave through employer-provided short-term disability insurance. This failure to act on paid leave has kept workers – especially women – on the sidelines and reduced economic growth.
Since the 45S tax credit was enacted, the companies that have utilized it have largely been those that could already afford to pay leave benefits out-of-pocket. This results in the bulk of taxpayer dollars going to large companies and a continued precarious financial situation for everyone else whose employers are not already offering paid leave. It also exacerbates the competitive disadvantage that smaller and mid-size businesses face in the absence of a national paid leave program by focusing the tax benefits on employers that already have the ability to offer paid leave. The Joint Committee on Taxation has estimated that the 45S tax credit, as renewed and made permanent in the House Republicans’ budget reconciliation bill, will cost $5.5 billion over the next 10 years.
Instead of making permanent an ineffective tax credit, Congress should focus on robust investments in a comprehensive, universal paid family and medical leave program, like the FAMILY Act. Fourteen states, including the District of Columbia, have programs in place that make paid family and medical leave accessible to nearly all working people within those states. The FAMILY Act is designed off of this successful state model and would provide access to paid family and medical leave to all workers, regardless of where they live or work.
While Congress’s job is not done until every worker across the country has access to paid leave, there are smaller, more incremental approaches that Congress should consider that can support individuals who currently lack paid leave, help small businesses afford to provide paid leave, and support state paid leave programs. Incremental approaches to paid leave should also lay the groundwork for and be able to complement an eventual universal, federal paid leave program. In contrast, policies like the 45S tax credit – which excludes businesses in states with paid leave – are incompatible with universal paid leave.
In this piece, we outline four better ways to spend $5.5 billion, the cost of the 45S tax credit, that would increase access to paid leave for some workers, ease financial burdens faced by individuals and small businesses, and support state paid leave programs that provide universal access to paid leave for workers in those states. These policy options could be enacted by amending the tax code or by authorizing and appropriating additional federal funding.
1. Providing Tax Credits to Help Offset Health Insurance Premium Costs for Individuals and Small Businesses
Congress should pass a tax credit for both individuals and small businesses to cover the cost of health insurance premiums while workers are out on paid leave.
For individuals, Congress should create a fully refundable and advanceable tax credit for individuals who continue to pay their insurance premiums while out on paid or unpaid leave.
For employers, Congress should create a quarterly tax credit for small businesses that provide employer-sponsored health insurance and continue to pay the employer portion of the premium while their employees are on leave. Congress can set an employer threshold, such as 50 employees, and restrict it to businesses with revenue below a certain amount. Eligibility should be limited to businesses that provide at least 12 weeks of paid leave that can be used for all purposes under the Family and Medical Leave Act and pay their employees a significant portion of their regular wages during leave. Congress should also consider adding additional incentives for businesses who choose to reimburse their employees for the employee-paid portion of their health insurance premium while on leave.
2. Providing Tax Credits to Help Small Businesses Cover Costs Related to Covering Work
Congress should pass a quarterly tax credit for small businesses who incur significant expenses related to staff replacement while their employees are on paid leave. This includes recruitment and training costs for temporary employees or costs for cross-training existing employees who can cover work. Making the tax credit quarterly will help small businesses access the benefit quicker and help with their cash flow. Similar to the health insurance tax credit, Congress can choose to restrict this by employer size and revenue. Congress should include requirements that the tax credit can only be claimed by businesses that provide 12 weeks of paid leave that can be used for all purposes under the Family and Medical Leave Act and pay their employees a significant portion of their regular wages during leave.
3. Increasing Funding for Workforce Development To Help Small Businesses Find Temporary Replacement Staff
Congress should allocate funding for workforce development programs that help small businesses respond to staffing needs while their employees are on paid leave. Increased funding would support additional capacity for business services offered at federally funded career centers in local communities. These services can help small businesses provide training to employees who may be temporarily assigned different or additional work or find and directly hire temporary employees. Funding could also help local workforce systems develop or expand transitional employment or temporary work experience programs that help workers with barriers to employment. These programs could connect small businesses with short-term staffing needs with qualified workers and also help them identify potential new talent for any additional permanent positions.
4. Providing Funding to Help States Administer Effective Paid Leave Programs
State passage of paid family and medical leave programs has resulted in the bulk of the increased access to paid family and medical leave since California first passed its universal coverage program in 2004. Even as increased access to paid leave has grown in the private sector, low-income workers in particular have been left behind. While 27 percent of workers currently have access to paid family leave through their employer, only six percent of the lowest-paid workers have access. In the absence of a national paid family and medical leave programs, state programs that cover all workers are the best way to get workers access to the paid leave that they need.
To support states that want to pass their own paid leave legislation, Congress should appropriate funding for three purposes:
First, Congress should appropriate funding to the Department of Labor to reinstate the Women’s Bureau’s Paid Leave Analysis grant program, which was successfully administered between 2014 and 2016. This grant program awarded more than $3 million to 17 states and municipalities to support research and analysis on the implementation of paid family and medical leave programs. Specifically, the grants allowed states to conduct the research and analysis needed to explore, develop, implement and/or improve paid family and medical leave programs. The grants directly led to the creation of several states’ paid leave programs and helped other states improve existing programs.
Second, Congress should appropriate funding to the Department of Labor to provide grants to help states implement paid leave programs that provide universal coverage. This could include funding to set up tech platforms, hire staff, or provide the first year of benefits. Helping states to implement their paid leave programs quicker will expand access for those who experience life events during those first few years of implementation. Similar ideas have been proposed in President Obama’s budgets and in Congresswoman Bice’s Paid Family Leave Public Partnerships Act.
Third, Congress should appropriate funding to provide technical assistance to states with paid leave programs or to states that are in the process of implementing paid leave programs. Technical assistance to states with existing paid leave programs could help those states function more effectively and identify and address barriers to access. A hub for technical assistance would not only help states that are standing up paid leave programs but also encourage states concerned about effective program administration to finally pass paid leave legislation. Similar ideas have been proposed in Congresswoman Houlahan’s Interstate Paid Leave Action Network (I-PLAN) Act.
While Congress’s ultimate goal should be to provide universal paid family and medical leave to all working people, there are multiple options for smaller investments that will increase access to paid leave in the interim. These four options for investments through the tax code and appropriations would help small businesses provide paid leave, help individuals while they are on paid or unpaid leave, help more states provide paid leave, and help the states that already provide paid leave improve their programs. Congress should pursue these and any other options that increase access to paid leave in a meaningful way, and should reject policies like the 45S tax credit that only line the pockets of wealthy corporations at the expense of working families.
