Will New York City get free child care?

There is a broad consensus among New York City Democrats that providing free child care for infants and toddlers is a good idea. How to pay for it is a different matter.

State Senate Labor Committee Chair Jessica Ramos, a freshman from Queens, introduced a new bill on Sept. 13 proposing that businesses pick up the tab through a new payroll tax that would fund the NYC Under 3 Act, which gives families a sliding scale of financial assistance for infant and toddler day care based on their income up to a limit of about $100,000 for a family of four. The NYC Under 3 Act was unveiled earlier this year by city Comptroller Scott Stringer, a close political ally of Ramos. (Since New York City is not allowed to impose new taxes under state law, the proposal requires a state action.)

Conservative and pro-business critics of payroll taxes say that they hurt businesses’ bottom lines, discourage hiring and prevent businesses from paying workers more. Kathryn Wylde, president and CEO of the New York City Partnership told The New York Post on Monday, “we already have a payroll tax that funds the MTA … It is easy to propose a new tax, but wiser to figure out how to avoid one.” Many on the left, including New York City Mayor Bill de Blasio, have previously argued that making high-income earners pay more in taxes is the best approach to funding child care.

Ramos’ bill proposes three different brackets for a payroll tax. Businesses with payrolls between $625,000 and $1.25 million would pay .015% of that, those between $1.25 million and below $2.5 million would pay .018% and a rate of .022% would apply for businesses with payrolls exceeding $2.5 million. Companies with payrolls below $625,000 and employers in the START-UP NY program for new businesses would be exempt from the new tax, according to the legislation.

A payroll tax, like the one that funds Social Security, is – even if nominally flat – is typically actually regressive because richer people and larger businesses have more disposable income. “There is this attempt to make it look kind of progressive because the rates go up,” said Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center, a nonpartisan, center-left think tank based in Washington, D.C. “But those larger businesses are still paying a flat fee.”

If the biggest businesses in New York City are paying the same tax rate as those with much smaller payrolls, why does an avowed left-winger like Ramos favor such a tax? Her proposal has as much to do with promoting a principle as much a policy. “In general, businesses in New York do not pay their fair share in taxes,” she said in an interview. “This is an area where we as a state haven’t really addressed growing need of a fully-functioning work force that can have some piece of mind in knowing that their children are being taken care of. and the payroll tax is an economic booster in that way.”

The bill, which will be sponsored by state Assemblywoman Latrice Walker from Brooklyn in her chamber, is not the first legislation that seeks to make businesses pay more for new social services through new taxes. Washington, D.C. and Seattle use that revenue source to pay for paid family leave and homeless services, respectively. Employers in D.C. began paying a .62% payroll tax in July, but employees will not receive benefits until one year later, according to an analysis by the national law firm VedderPrice.

Seattle provides a cautionary example of how the realities of business can upend efforts to make businesses pay more for social services. The Seattle City Council last year passed a $275-per-employee tax on companies with at least $20 million in gross annual revenue, only to reverse itself one month later after Amazon and Starbucks, which are both based in the city, began flexing their political and public relations power to oppose the charge.

While the business community is wary of any new taxes, there are reasons to believe that companies in New York City will have a harder time arguing that the proposed tax in New York City is going to hurt the city’s economy, as Amazon and Starbucks claimed in Seattle. New York City much larger than Seattle and much less dependant on any one company. The tax that Ramos is proposing is relatively small: it is a third of what Washington, D.C. is charging for family leave. The biggest payroll taxes around, Social Security and Medicare, tax businesses and workers each a combined 7.65%.

Another .02% or so on top of that isn’t much for big business in the city, but it could make it harder for smaller businesses. The Ramos bill forbids them from deducting the new payroll taxes from their workers’ salaries, but if the tax becomes law then businesses might curb future hires and pay increases. On the other hand, the child care program might itself bring businesses to New York City.

“Businesses do like lower taxes and that is a reason why they locate to certain cities,” Auxier said. “But it is far from the only reason. Some really big reasons that businesses are located in certain places is because they have good schools, and good education services, and child care services – because they know that they’re going to get really smart, hardworking employees who say: ‘I want to work in this city, because I know the government is going to help me.”