Tax Credits: The Wrong Approach for Paid Leave

tax credits for paid family & medical leave

Giving tax credits to employers who offer paid family and medical leave has become somewhat popular. The idea is if businesses can be incentivized to offer important business practices, then they will. This is a policy Congressional Republicans piloted in their 2017 tax cut plan, and one that has been championed by members of the Colorado legislature. But data and studies show it doesn’t work as intended.

Why Not Tax Credits?

A survey from Ernst and Young shows fewer than 40 percent of employers would offer paid leave if tax credits were put in place. It would also give tax credits to businesses that are already offering them, leaving many workers out in the cold. For example, the Work Opportunity Tax Credit incentivizes businesses to hire veterans with disabilities or who are unemployed. It’s a very laudable goal to help veterans who face obstacles after service to find meaningful work. But studies show most businesses who have taken advantage of the tax credit are large businesses that would’ve hired that person anyways. It hasn’t changed behavior as much as the supporters of the tax credits would have hoped.

Another big problem is, just like now, workers would be at the mercy of their bosses and companies. Paid family and medical leave shouldn’t be dependent on the boss lottery. Furthermore, with this policy, many independent contractors, gig economy employees and freelancers would not have access to tax credits. As the economy continues to change and more people opt for the freedom of independent contracting and similar work arrangements, these tax credits would be obsolete.

The Bell Policy Center has, and will continue to, champion tax credits that make sense. Tax credits that go to low- and middle-income families, like those for child care, work because they go directly to the people who need them most. Tax credits that improve teacher retention rate — they go directly to teachers — help students continue with quality teachers and allow the teachers to live in the communities where they teach. Tax credits that go directly to business as a carrot have not shown to be helpful in influencing behavior. And ensuring all Coloradans have access to paid family and medical leave is crucial.

If Not Tax Credits, Then What?

Paid family and medical leave helps families care for newborns or sick family members. Paid leave helps individuals recover from illnesses and other emergencies. It will ensure Coloradans don’t have to choose between a paycheck and their family or their health. Putting workers at the mercy of their employer hurts the worker and causes pain for the employer, in terms of missed time, low employee retention rates, and decreased productivity and morale.

The smart way to employ paid family and medical leave is through shared responsibility. There are many places that have pioneered smart policies to help workers and businesses. Those policies are the right way forward. Paid family and medical leave policies have been unavailable, unaffordable, inaccessible, and inadequate for many Coloradans for far too long. The best approach for Colorado is one that ensures as many people as possible have access to paid family and medical leave… and tax credits don’t offer that.

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