Monday, May 15, 2017

Colorado Going Over the Deep End

Dear Fellow Wyomingites,

We may have our problems here, but sometimes it feels extra good not to live south of the border. (And no, I am not referring to Mexico...) 

Last year our Colorado neighbors voted on whether or not to create a single-payer health care system down there, and now the Democrats in the Centennial State are pushing two other, major entitlement programs: paid family leave and a state-run pension system for low-income workers. 

The single-payer system failed a popular vote, but given the campaign for other entitlement programs it is only logical to expect that idea to resurface in a not too distant future. In the meantime, the egalitarian campaign for more economic redistribution in Colorado will continue. Here is, for example, the bill that would create a paid-leave entitlement program:
The bill creates the family and medical leave insurance (FAMLI) program in the division of family and medical leave insurance (division) in the department of labor and employment (department) to provide partial wage-replacement benefits to an eligible individual who takes leave from work to care for a new child or a family member with a serious health condition or who is unable to work due to the individual's own serious health condition. 
The benefits are to be paid out according to a step-down scale where the benefit declines with rising income:

  • For a worker who earns no more than 20 percent of the annual mean wage in Colorado, the entitlement will replace 95 percent of his income;
  • For a worker who earns more than 20 but not more than 30 percent of the annual mean wage in Colorado, the entitlement will replace 90 percent of his income;
  • For a worker who earns more than 30 but not more than 50 percent of the annual mean wage in Colorado, the entitlement will replace 85 percent of his income;
  • For a worker who earns more than 50 percent of the annual mean wage in Colorado, the entitlement will replace 66 percent of his income.

There is, however, a cap on the weekly benefit at an indexed $1,000 per week. 

So much for the entitlement side. Now for the funding part:
Each employee in the state will pay a premium determined by the director of the division by rule, which premium is based on a percentage of the employee's yearly wages and must not exceed .99%. The premiums are deposited into the family and medical leave insurance fund from which family and medical leave benefits are paid to eligible individuals. 
As always with entitlement programs, the first order of business is to calculate the maximum entitlement value and compare it to the maximum expectable tax revenue. Here is how the entitlement benefits would be paid out, provided every eligible person maxed out his annual ration of 12 weeks of paid leave at the income replacement rates reported above:

  • For the group making less than 20 percent of the annual mean wage: $283.6 million;
  • For the group making at least 20 but less than 30 percent: $344.1 million
  • For the group making at least 30 but less than 50 percent: $1,066.4 million
  • For the group making at least 50 percent of annual mean wage: $14,302.3 million.

In other words, the maximum entitlement value is $16 billion. Based on the 0.99 percent income tax designated to fund this program, the revenue would cover 8.4 percent of the maximum entitlement value. 

This enormous discrepancy between designated funding and maximum entitlement value is symptomatic of how state-level income replacement programs are designed. It threatens the long-term fiscal solvency of the programs, especially when people become aware of them, yet proponents carefully avoid talking about this consequence of their agenda

Since they don't, we will. Experience from California is telling: in the first decade of its existence, the costs of the California paid-leave program grew by 87.5 percent - despite the fact that during that period only about half of all eligible Californians knew of the program's existence. 

In time for its ten-year anniversary, Governor Brown signed into law a major expansion of the paid-leave program. This is likely to skyrocket the costs for it to taxpayers.

Interestingly, the sponsors of the California paid-leave program appear to be well aware that their program is not, and probably never will be, funded by the tax that is supposed to pay for the program. Back to Colorado House Bill 1307:
The director may also impose a solvency surcharge by rule if determined necessary to ensure the soundness of the fund. The division is established as an enterprise, and premiums paid into the fund are not considered state revenues for purposes of the taxpayer's bill of rights (TABOR).
In other words, an open road to tax hikes in the name of the egalitarian welfare state.

As of May 3, the bill aimed at creating this massive entitlement program is stuck in a Colorado State Senate committee. Hopefully, the senators down in the Centennial State will come to their senses; if they don't, we up here in Wyoming will be happy to welcome all productive, honest, hard working, God-fearing, entrepreneurial Coloradans. After all, if the utilization rate of this paid-leave program came even remotely close to its own maximum entitlement value, the consequences for Colorado taxpayers would be quite serious. 

Add to this the risk that the state will go for single-payer health care (or at least something closer to it than what they have today) and the idea of a low-income state-run pension system, and the long-term outlook for the Colorado economy suddenly got a bit dimmer.

The aggressive push for new entitlements down in Colorado is a stark reminder to our lawmakers here in Wyoming to not fall for the temptation to raise taxes in response to the budget deficit. On the contrary, if they can walk the line, avoid tax increases and instead concentrate on downsizing our state and local governments, then  we will quickly become an economic powerhouse with a business appeal far beyond our state line.

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