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July 2 2018

Paid Leave Won't Destroy Social Security, But Improve It

via Forbes
by Carrie L. Lukas

When most people are asked about paid leave, they just want to make sure that workers have access to this important benefit.  Yet inside the beltway, people know the devil is in the details, and that even the best-intended programs can backfire and harm those that they are meant to help.

That's why it's so important for any proposal to be carefully vetted by as many experts as possible.  Both the Heritage Foundation and Mercatus reviewed a recent proposal laid out by the Independent Women's Forum, in a paper written by Kristin Shapiro, to reform the Social Security program to give workers the option of accessing paid maternity/paternity benefits.  Both reports express concerns that this proposal would aggravate the already-precarious financial position of Social Security, ultimately harming the safety net and burdening taxpayers.

These are important considerations, but both analyses miss important factors that would make these reforms a win for those concerned about the overall levels of public spending and our entitlement programs—as well as make our safety net better and more efficient.

Social Security Is Already Based on Trade-offs

The foundation of the proposal to reform Social Security is a trade-off:  Workers who opt to take a parental benefit after having or adopting a child are agreeing to delay access to their retirement benefits to compensate for those costs. Both the Heritage and Mercatus papers express concern that policymakers will undermine this concept.  They will decide it seems unfair or harsh to penalize those who took parental leave, so ultimately do away with the pay for, leaving the parental benefit as just a costly new entitlement program run through the Social Security system.    

Yet this concern seems unfounded, and ignores how the concept of trade-offs is already baked into Social Security.  It would be a concern if under current law everyone was guaranteed the same benefit at retirement, and that solely those who took parental leave would face a lower or altered payment schedule.  But that's not how Social Security works.  Benefits are already calculated based on each individual's earnings history so that everyone who receives a retirement benefit has a personalized amount based on his or her decisions about work and retirement date.

Congress has not considered reforming the benefit calculation for people who lost their jobs or took time out of the workforce to care for a loved one, and therefore qualify for lower retirement payments; nor for those who took retirement early and therefore have a lower monthly payment.  It's unclear why these groups are any less sympathetic—or politically powerful—than those who would choose to take parental leave.  In fact, the existence of other groups who also sacrificed opportunities to maximize Social Security benefits would help prevent policymakers from eroding this concept, since the decision to increase payments for one group would make the system less secure (and less fair) for others.

We Should Be Concerned about the Overall Burden on Taxpayers; Not Just Social Security's Finances

Social Security's long-term financial problems are a significant concern, and it's a legitimate criticism that the parental leave proposal would front-load some costs, creating additional spending in the near term, while accruing savings in the future.

It's important, however, to keep this issue in perspective.  The Heritage Foundation suggests that this plan would cost between nine and twelve billion per year.  The Urban Institute (which also analyzed the Social Security paid leave proposal) estimated that the program would move up the Social Security Trust Fund's date of insolvency by less than a year.  That's something to consider, but overall a pretty modest impact.

Moreover, while it is important to be concerned about this proposal's impact on Social Security's finances, it is more important to consider how it would impact taxpayers as a whole.  Currently, nearly half of low-income women who lack access to paid leave end up using public assistance after giving birth. The public assistance programs that they use (and that taxpayers pay for) don't come with a trade-off of deferred retirement benefits.  Reducing dependence on those safety net programs would save taxpayers money.

Additionally, the analysis of the impact of paid leave ignore other ways that it would impact people's behavior.  For example, women with paid leave benefits are more likely to go back to work after having a child, which means they will have higher earnings over their lifetime and end up paying more into Social Security.  That could also help offset the early costs associated with accessing paid leave benefits.

Moreover, if one's primary concern is controlling entitlement programs' burden on taxpayers—and that's an important one to have on the top of the list—one ought to consider how this issue is likely to play out in future years.

If paid leave isn't incorporated into Social Security, then it is highly likely that states will continue to pass their own paid leave programs, often with their own dedicated payroll taxes, or a future President and Congress will embrace a proposal like the AEI/Brookings plan, which would create another uncapped, entirely new entitlement program with its own new payroll tax.  While this new paid leave entitlement program wouldn't directly impact Social Security's financial health, it would make it even harder to ask taxpayers to finance Social Security's shortfall in the future when even more of their paychecks are already being eaten up by payroll taxes.

It's Time to Modernize Social Security and Make Our Safety Net More Efficient

Mercatus argues that a reason to oppose the paid leave proposal is that Social Security's historical mission has been to “provide 'a comprehensive package of protection' against income loss as the result of a permanent departure from the workforce, consequent to a primary household earner’s retirement or death.”

That is true, but the intentions of those creating a program in 1935 isn't a reason not to consider how to modernize the program to better support the needs of today's very different workforce.  Government has created many laws and programs that no longer make sense for today's very different populace and work environment, which makes updating them an imperative, so that they do not impede progress and innovation.

Currently, Social Security is structured so that it takes a significant share of income early in someone's working life—when people tend to have lower income and larger expenses—and then provides a relatively large benefit at retirement, beginning around age sixty-seven, which may have been the end of a workers' life in 1935, but now is a time when people tend to be more financially secure and many are able and happy to continue working.

If some workers today believe that their need for income support is greater in the weeks following the birth or adoption of a child than it will be at age sixty-seven—and they are willing to make the trade-off so that the overall value of their benefits is unchanged—then it isn't clear why the government's should prevent them from making that choice.

Certainly, policymakers will need to consider this precedent carefully and insure that people do not front-load their Social Security benefits leaving them without sufficient support during retirement.  Yet the potential for those future slippery-slope options doesn't mean that it is a mistake to consider how to modernize the existing safety net so that it is used more efficiently today.

Reforming Social Security Could Encourage Other Needed Changes

Critics suggest that incorporating paid leave into Social Security would make it even harder to make needed changes to the financially unsound retirement program.  Yet the opposite seems more likely.

With more people vested in the overall health of the program at more stages of life, they may be more open to changes to slow the grow of future benefits or modestly cut benefits for higher earners, especially if they have a greater ability to customize the timing of when they use those benefits.  Once people become used to the ideal of people opting to push back their retirement age, it may become less difficult to gradually raise the normal retirement age to reflect increases in longevity.  Regardless, it would be hard to damage prospects for entitlement reform, given just how bleak they already are.

Paid Leave Through Social Security Improves the Safety Net With Least Disruption of Business

The recent tax cuts showed that businesses want to better support their workers when they can afford to do so.  Companies have been expanding their paid leave benefits, including to hourly workers, as well as increasing wages.  That's great news and a process we all want to see continue.

One of the biggest problems with government involvement in offering paid leave programs is that it could discourage private businesses from offering benefits on their own and create less flexible workplaces.  Compared to other approaches, like the creation of a new stand-alone entitlement program, the Social Security paid leave proposal is much less likely to crowd out private action or encourage discrimination.

Since employees would be making a trade-off in delaying future retirement benefits, employees would still want and benefit from employer-provided paid leave, which would give those businesses that offer such benefits a competitive advantage in attracting and retaining valuable workers.  Employers would face no new costs in administering or paying for those who elect to use Social Security, other than in temporarily using replacement workers, a problem that they would have often faced even in the absence of the Social Security paid leave benefits.

What Happens Next?

Americans overwhelmingly support the government acting to make sure that all workers—particularly those with lower income who are the least likely to have on-the-job benefits and the least ability to save for time off on their own—have access to paid leave, particularly after giving birth or adopting a child.

Those concerned with the potential for exploding government costs, burdening entitlement programs and taxpayers, and the potential to crowd-out private businesses’ programs ought to consider what the likely outcomes are on this issue.  Doing nothing and preventing any government action is unlikely to succeed for long.

Modernizing Social Security to allow workers to access paid leave benefits, in exchange for modestly reduced retirement benefits, seems the best way to address the legitimate need for paid time off and help those who fall through the safety net, without burdening taxpayers, growing government or meaningfully discouraging private action.

Critics of this proposal convincingly argue that policymakers ought to be vigilant in structuring reforms so that the trade-off of delayed retirement benefits fully compensates for the parental leave benefits and does not exacerbate our entitlement program's long-term financial problems.  But they ignore the political realities of how this paid leave debate is likely to play out and the likelihood that the nation will otherwise end up with a far more costly and burdensome government paid leave program.  They also overlook the potential upside of shifting how Americans think of safety nets, trade-offs, and the need to modernize our entitlement programs to make them more flexible, but also financially sustainable, for the long-term.

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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