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April 27 2018

Social Security Paid Leave: Let’s Have an Honest Discussion of the Trade-offs

via National Review
by Carrie L. Lukas

Under a new conservative proposal — first outlined in a paper by my Independent Women’s Forum colleague Kristin Shapiro — workers could take paid leave after having a child in exchange for agreeing to delay collecting retirement benefits from Social Security. An analysis from the left-leaning Urban Institute, however, raises some concerns about the proposal.

This idea should be thoroughly vetted, and we welcome fair criticism. While we differ with the Urban Institute’s analysis on a few points, it is clearly a measured attempt to weigh the plan’s costs and benefits. The real downside of the new report, though, is the way that some in the media have deliberately misinterpreted its findings in an effort to sabotage a worthwhile idea.

The report’s authors, Melissa Favreault and Robert Johnson, sought to estimate the budget implications of this program and to calculate how long parents would have to delay their retirement to offset paid parental leave. Taking into account the significant share of people who end up relying on Social Security’s disability program before their normal retirement age (and who would thereby be prevented from repaying the implicit debt), they conclude that workers would have to delay retirement benefits by as much as 25 weeks to offset the costs of twelve weeks of parental leave.

They also estimate that one twelve-week leave would result in an overall reduction in someone’s total Social Security benefits by 3 percent.

They note that these delays in retirement benefits could create hardship for those with lower incomes or challenging employment situations as they approach retirement. The authors also estimate that, because the program’s costs would be front-loaded (as paid leave starts immediately while the retirement delays would happen decades in the future), it would affect Social Security’s Trust Fund finances as well, albeit modestly, moving up the date of insolvency by less than a year.

Their analysis is a welcome addition to the paid-leave discussion. However, the report places too little value on the voluntary nature of this program, ignoring that people would be electing to take benefits early, and so would be making an informed decision that the money at the time of a child’s birth was more important than the benefits at age 67. And while the authors focus on the potential hardship of having to work about an extra five months for each period of leave, they fail to put this in the bigger picture of the enormous gains in longevity. Even a one-year-later retirement age is still a relatively early retirement given today’s life spans.

However, it’s worth considering other ways that people could repay the system for their parental-leave benefits. For example, leave-takers could have the option of temporarily paying a higher payroll tax. Those who did so and paid back the costs of their leave could then become eligible again for full retirement benefits.

The Urban Institute’s measured analysis contrasts with some of the media coverage of the findings, such as this article at Slate by Alieza Durana, with the inflammatory and misleading title “New Study: The Republican Plan for Paid Leave Is Going to Undermine Social Security.” Durana ignores the nuances in the Urban Institute report and dismisses the Social Security parental-leave approach as being “too good to be true.” At the same time, she makes contradictory arguments in favor of her preferred alternative approach to paid leave, suggesting that it could somehow be both more generous and less expensive.

Durana blithely suggests that the Democrats’ FAMILY Act, a proposal to create a new entitlement program that would give all workers access to up to twelve weeks of paid leave each year (including both parental leave and leave for workers’ and family members’ illnesses), could be financed by asking employers and employees to pay “about the cost of a cup of coffee per week.” Talk about too good to be true!

Analysis by the conservative American Action Forum confirms the obvious: The FAMILY Act would be much more expensive than advertised. The legislation would officially force all workers to pay a 0.4 percent payroll tax, which works out to about $200 per year for the median worker. That may be about the cost of a (high-end) cup of coffee a week, but over the course of a working lifetime it adds up to a total of about $8,000 in lost savings, and that’s without including any interest. Further, AAF found that the income generated from this payroll tax would cover only a fraction of the expected costs. The lower-bound estimate of how much the program would cost added up to the equivalent of 2.1 percent of payroll, and it could go much higher.

 
Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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