Editorial: Believe it or not, Springfield is mulling a jobs tax
In a state where one of the only job sectors that's growing is the government, it's a terrible idea to implement a new tax that hits private-sector employers and workers hard.
That's what the payroll tax being considered in Springfield would do.
State Sen. Ram Villivalam, D-Chicago, wants to adopt a state payroll tax to do something that sounds good — cover paid family and medical leave. Called the Paid Family and Medical Leave Insurance Program Act, Villivalam's legislation would impose a new tax based on a worker's wages and would be withheld automatically from paychecks, just like Social Security and Medicare. Both the employee and the employer would have to contribute toward this payroll tax.
Last month, the state Senate extended the normal deadline for considering the bill, suggesting there's some momentum.
Revenue from the program, which would impose a 1.12% tax on paychecks (paid in part by the employee and in part by the employer), would fund benefits in a state-managed paid leave program, giving workers up to 18 weeks of paid family/medical leave each year, plus up to nine extra weeks for pregnancy. The tax would take effect Jan. 1, 2027, for employers with 25 or more workers.
Initially, the tax would apply at companies employing at least 25 people, but by 2029 all employers, no matter how small, would be affected.
Sounds good, right? Unfortunately, as with all new taxes, this one is all but sure to rise with time. Consider Minnesota, which is launching its own leave program and payroll tax. In 2023, legislators enacted a 0.7% payroll tax to take effect in 2026. The tax hasn't even hit employers yet, but lawmakers already have boosted the rate to 0.88% since then.
If times were better in Illinois, a proposal like this might be worth considering, given the struggles new parents face. It's especially egregious that many women, lacking federal paid leave or job protection, are forced to return to work just a few weeks after giving birth — or risk losing their jobs. But times aren't good, not for the state's economy or its finances — which continue to be plagued by $144 billion in pension debt and yearly budget deficits.
There's already a major jobs issue in Illinois, where private-sector job creation is virtually stagnant. As of the end of last year, Illinois gained a net 32,000 nonfarm jobs since the end of 2019, just before the pandemic.
But 73% of them were government jobs. That's not a recipe for a strong economy.
A state payroll tax would punish businesses for … hiring people, something we desperately need them to do. While intended to help workers afford time off for health and family reasons, it would increase the cost of hiring and maintaining jobs here and expose both employers and employees to future tax hikes if the program runs deficits.
In other words, it's possible that the Paid Family and Medical Leave Insurance Program Act could lead to fewer workers around to take advantage of paid leave.
The last thing Illinois should be doing right now is creating new disincentives to hiring.
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