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August 16 2018

A Paid Family Leave Plan That Congress Might Actually Pass

via The New York Times
by Kristin A. Shapiro

Early this month, Senator Marco Rubio introduced the Economic Security for New Parents Act, a proposal for paid family leave that is modeled after one that I developed. The idea is to offer new parents the option of collecting Social Security benefits for at least two months in return for deferring their retirement age for the period of time necessary to offset the cost.

Many policymakers have opposed giving parents this option. Senator Kirsten Gillibrand argued that it presents a “false choice” between parental leave and retirement. Senator Sherrod Brown stated that it’s “not paid family leave at all” but instead “robbing from your retirement.” They would prefer to fund leave through a “low cost” payroll tax.

However, a payroll tax would not magically lower the cost of a federal parental leave program. It would “rob” from every paycheck, and workers would have no choice (not even a “false” one) but to pay it. The tax might seem small, but it would cost thousands of dollars over the course of a lifetime — otherwise it would not sustain the program.

Although neither the Social Security proposal nor a payroll tax can reduce the cost of parental leave for workers, both approaches can make leave affordable for workers who would otherwise have to take unpaid leave to care for a new child. And the Social Security proposal has some added advantages: It is less likely to displace employer-provided leave, and it is a pragmatic solution, one that does not require a new tax, to a problem that affects most American families.

The two approaches to paid family leave improve affordability in similar ways. Both would allow new parents to avoid a several-thousand-dollar loss of income immediately after the arrival of a child. Under the payroll tax plan, they would pay a small, new additional amount out of each paycheck throughout their career. In other words, a tax would amortize the cost of leave over many years.

The Social Security approach would also amortize the cost of parental leave: Parents could collect a benefit at the time of a birth or adoption, but they would not have to “repay” it until retirement. They could do that either by delaying the collection of their retirement benefits a few months or by retiring at the same time and collecting slightly lower monthly benefits. In either case, they would have decades to save to make up for the cost of their benefit.

Advocates of a payroll tax claim that it would provide “social insurance” against the cost of leave, as it would require workers who do not need leave to subsidize those who do. Admittedly, the Social Security approach would provide no such insurance.

Whatever the merits of social insurance in other contexts, it offers at most a modest benefit with respect to parental leave. Unlike a house burning down or a car being totaled, having a child is neither rare nor unpredictable. An overwhelming majority of women, 86 percent, have at least one child by the time they reach their 40s, and the number of children doesn’t vary widely — between one and three for about 75 percent of women. Because most workers will need parental leave at some point, spreading out its cost among all workers would accomplish relatively little.

Opponents of Mr. Rubio’s plan contend that it would penalize women because women are more likely to take parental leave and to rely primarily on Social Security in retirement. But Mr. Rubio’s legislation would allow couples to pay for one parent’s leave using the other’s benefits. In that way, the legislation permits, but does not require, parents to shift the cost of leave from the mother to the father (or vice versa). Most children live with two parents, and these families operate as one economic unit, substantially nullifying any cost-shifting under either the Social Security or the payroll tax approach.

Moreover, if the goal is to allocate resources to the families who are most in need, a payroll tax is at best a sloppy way to do this. Researchers analyzing California’s payroll tax-funded leave program, for example, found that only a quarter of new mothers used the benefit, and of those who did, their median earnings were $10,000 higher than for working women in the state over all.

A payroll tax approach also risks displacing employer-provided leave. Employers pass on the cost of payroll taxes to employees in the form of lower wages than they would otherwise get, and recent research on the impact of public insurance on employer-provided insurance raises real concerns about tax-funded family leave “crowding out” existing paid leave benefits. A representative of Deloitte recently testified at a Senate hearing that the company decreases its leave benefit in states that have social insurance leave programs.

There is another difference between the approaches. Because the Social Security proposal doesn’t require a new tax, it is much more likely to gain enough support in Congress to actually be passed into law. Anyone who wants to make parental leave affordable should welcome this idea.

 

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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