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John Reynolds: Math won’t work on paid leave mandate for Minnesota small business

John Reynolds new state director.jpg
John Reynolds
Contributed / National Federation of Independent Businesses

Minnesota’s small business recovery remains a work in progress. Disruption to our economy from the pandemic, supply chain shortages, inflation, worker shortages, and other obstacles are hurting the comeback.

That’s why the more than 10,000 small businesses represented by the National Federation of Independent Minnesota are disappointed to see lawmakers propose a nearly $1 billion tax increase on workers and employers.

Budget proposals rolled out last month by progressive state lawmakers again include a paid leave mandate on small businesses, which allows for up to 24 paid weeks off per year through a government-run, privately funded program.

They propose a new payroll tax on employers and employees to pay for the mandate. In a 2019 version, the new tax was set at .6% to start and could increase in future years. That’s about $840 million per year on the backs of Minnesota taxpayers and small business, not including the cost of paying overtime or hiring replacement workers to backfill an employee on leave.

In estimating the proposal’s cost, the state assumed only about 6.5% of the workforce would use the program, the average user would take 6.6 weeks of leave per year, and the average user earning about $35,400 per year. Data from advocates for the mandate was used in creating these assumptions.

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The accuracy of these details matter. Recent history shows we should carefully scrutinize assumptions used to estimate new public program costs.

In the 2000s, a social services program called HealthMatch was supposed to take two years and cost $13 million. However, eight years and $41 million later, it was scrapped without launching. In its first years of operation, MNsure missed enrollment estimates by 80 percent. MNLARS took 10 years and over $100 million before it was scrapped for a new $34 million driver’s license system.

If the assumptions for the new paid leave mandate are even slightly off, the math goes bad quickly for workers and employers.

For example, in 2019, the average income per Minnesotan was higher than the average annual income seemingly used in the state’s analysis. Under the proposal’s weekly benefits formula, the average Minnesotan would therefore receive $27 more per week than the state estimate.

Even a $27 increase in the estimated weekly benefit would have a big impact on the price tag. That change alone would increase the program’s cost by $40 million per year. If the average amount of leave also increased, to 12 weeks per year, the total cost would rise to $1.5 billion per year. And if the average user took 24 weeks as allowed in the proposal? The program would cost a staggering $3 billion per year.

And all this extra cost gets passed on to workers and small businesses in the form of higher and higher payroll taxes.

The toll from the pandemic and government mandates on mom-and-pop stores is evident all over our state. Signs reading “Closed Today – No Workers,” reduced operating hours and shuttered storefronts are a sadly common sight on Main Street.

According to the most recent NFIB data, 92 percent of small businesses are experiencing supply chain disruptions, 68 percent are experiencing staffing shortages and 22 percent report inflation as the single biggest problem (a 40 year high).

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Small businesses are doing everything they can to meet the challenges of this moment. They need support from state lawmakers, not a billion-dollar mandate.

John Reynolds is the Minnesota State Director for the National Federation of Independent Businesses (NFIB), which represents over 10,000 small businesses in Minnesota.

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