December 3, 2021
The Seattle Times reports that Gov. Inslee and Senate Democrats are talking about delaying the long-term care payroll tax. Senate Democratic leadership sent the governor a letter on Wednesday asking him to delay the tax until Jan. 1, 2023.
Under current law, the tax is scheduled to begin Jan. 1, 2022. A lawsuit was filed last month that argues that the long-term care program is unlawful under federal and state laws. We wrote in depth about the long-term care program here.
According to Rachel La Corte of the AP,
Inslee said at a news conference he didn’t have the authority to make a unilateral decision. He said a pause could come as the result of a special session, but said he is also talking to lawmakers about other approaches that would allow a pause of the program’s implementation while the Legislature works on aspects of the bill during its 60-day session that begins Jan. 10.
Inslee said because the tax, which is withheld by employers, is not due to the state until April, it’s possible that timeframe “could give the legislature time to make these refinements.”
“But we’re seeking legal clarification on that to make sure that’s the case,” he said, saying that a decision was expected within days.
Mike Faulk, a spokesman for Inslee said the office is “exploring how to suspend payment by employers to the state and a mechanism for employers to reimburse employees.”
The letter from Senate Democratic leadership acknowledges that the tax will be felt by taxpayers: “As our state and nation continue to grapple with Covid-19 and support a healthy financial recovery for everyone, now is not the time to add a payroll deduction, even for a critical need.”
The letter states,
While the law allows people who already have private long-term care insurance to opt out of the program, many of our constituents were unable to do so by the November 1st deadline. This was in large part due to the failure of the private long-term care insurance market. This market has been unstable and unpredictable for many years and is a risk to many consumers who purchase policies that never pay out benefits. Nevertheless, many employees who wished to opt out will nonetheless get assessed the 0.58% on their wages on January 1st. The Legislature should be given ample time to evaluate our options before employees get money taken out of their paychecks.
It is certainly true that it became close to impossible to purchase private insurance this summer and fall. But that’s because the Legislature allowed exemptions to the program if private insurance was purchased before Nov. 1. That set off the rush on an otherwise pretty quiet long-term care insurance market. On top of the increased interest, insurers worried that new purchasers would simply drop their new plans as soon as they received an exemption from the state. (Also, it is odd to see supporters of the program bemoan the fact that their constituents were not able to opt out of it.)
The letter continues,
Additionally, considering the high number of unexpected exemptions, it would be a benefit to everyone to examine the impact of the exemptions on the program. Delaying the program will give us time to analyze recent data. If the long-term solvency is in doubt, we must be able to examine all options for modifying the program to ensure viability into the future. If employees in Washington are already being assessed the premium it could complicate and limit potential solutions.
The AP story reported that as of Dec. 2, more than 430,000 people had applied for exemptions. That’s well above the 300,000 or so that were expected in the fiscal notes for the bill. As we showed in our policy brief on the program, it was already only expected to be fully funded through 2075. The high level of exemptions will further impact solvency, especially if the exemptions cover a high share of wages. The lower the wage base, the higher the tax rate might have to be in order to make the fund solvent.
As we suggested in our policy brief, the state might want to reconsider the entire program. Doing so now, before taxes begin, would certainly be the cleanest way to do so.Categories: Employment Policy , Tax Policy.