May 16, 2017

Colorado: The Egalitarian Frontline

This article is an independent sequel (if the term is permitted) to my article of October last year about the attempts to create a single-payer health care system in Colorado. It was originally published on my blog Wyoming Prosperity. This is a slightly revised version.
Last year voters in Colorado were given the chance to create a state single-payer health care system. The effort failed, but that has not deterred some Coloradans from going after two other, major entitlement programs: paid family leave and a state-run pension system for low-income workers. 

It is a safe bet that we will get the chance to return to the single-payer health care issue later on. Welfare statists do not give up that easily. 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. 
It should be noted that this bill has not yet left the Senate committee it was assigned to. That, however, is very likely only a temporary road bump. Therefore, it is essential to examine this idea in detail. For example, take a moment and listen to what Vanessa Brown Calder of the Cato Institute has to say about the paid-leave program.

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 one question to ask is why this aggressive push for new entitlement programs is taking place in Colorado of all places. In the past several years, the trend in state legislation has been in the other direction, at least no the tax side. (We still have not repealed a single major entitlement program in this country.) There are two plausible explanations:

1. Colorado has been a magnet for Californians tired of the excessive taxes out there. After having voted their state economically uninhabitable, those Californians leave for a better life in the Rocky Mountains. True to their political DNA, though, they immediately start working for all the things they vote for, but could not live with, in California. 

2.  Colorado is a swing state. If Democrats can top off the welfare state with the last few entitlement programs still missing in the American version of egalitarianism (compared to, primarily, its Scandinavian peers) and do so in a swing state, the calculation is that other swing states will give in to the egalitarian ideology, embrace Elizabeth Warren (or whoever the Democrats nominate in 2020) and even swing Congress in a progressive direction. 

One explanation does not exclude the other. But regardless of what is motivating this egalitarian offensive in Colorado, it is absolutely essential that it be countered with thoughtful, principled thinking, persuasive arguments and solid analysis. 

I grew up in the world's most egalitarian welfare state. There is a reason why I do not live there anymore. 

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