Tuesday, September 24, 2002

I mentioned this story a few weeks ago. I find something a little confusing here, because the original story from the San Jose Mercury News said that the maximum yearly tax was $520 for workers making $65,000 and up. All of the news articles are now reporting that the maximum yearly tax is $70 for people earning more than $72,000. You can read the recent stories from Reuters, AP, USA Today, Los Angeles Times, Washington Post, and San Jose Mercury News.

Republican gubernatorial nominee Bill Simon has called Governor Davis's labor policies bad for business. And the Chamber of Commerce is "profoundly disappointed" with the signing of the bill. Besides providing an incentive not to work, the numbers don't seem to add up.

The law allows for six weeks of paid leave at 55% of wages up to $728 per week. The average annual tax to support this law is $27 per year per worker. The maximum tax is $70 for workers earning over $72,000 per year. 13 million California workers would be forced to participate in the program.

1. At $728 per week for six weeks, someone on paid leave would earn $4,368. At $70 per year in tax contributions, it takes 62.4 years for the state to get the money back, not including interest or a change in taxes.
2. At $27 per year in taxes from the average worker, the state will raise $351 million per year. If the newspapers are misusing the term "average," the $351 million could be wrong.
3. The typical Californian making the median salary of $36,000 would receive approximately $380 per week in benefits. For six weeks, this is $2,285. At that cost, approximately 1.18% (153,637) of the 13 million eligible workers could take advantage of the program for six weeks every year.

Now I realize that not everyone would take advantage of the program, not everyone would take six weeks, and the law does say that employers can require the employee use up their paid vacation first, but I see a train wreck coming. With any government program, there's an economic incentive to use it. Far more people will use this program than estimated, if the numbers are based on people taking unpaid leave now under the federal law. I anticipate a lot of people having a "serious illness" in the family. I would bet on this program having a budget shortfall within the first two year, necessitating a tax increase.

Here's the governor's press release, and the actual text of the bill. Again, I'll be gone for two days and not posting, but I want to receive a lot of e-mails from my readers on this topic. I'll post additional comments as soon as I read the e-mails and see what others are writing on this subject.