Paid Family Leave: The Next Big Budget Boondoggle

By Sven Larson, PhD

Paid family leave, President Trump’s new entitlement proposal, seems like an inconspicuous idea on the surface, but it is an enormous fiscal gamble: once the program is up and running, it could easily add hundreds of billions of dollars to the federal budget.

Paid family leave, President Trump’s new entitlement proposal, seems like an inconspicuous idea on the surface, but it is an enormous fiscal gamble: once the program is up and running, it could easily add hundreds of billions of dollars to the federal budget.

In his first budget, Trump proposes a federal paid-leave program for parents. He is the first Republican president to bring up such an idea. In fact, paid family leave has long been a staple of the progressive-Democrat agenda. They portray the United States as a backwards nation for not having a national paid-leave program. Yet the paid-leave idea has a growing circle of Republican friends on Capitol Hill, thanks in good part to the efforts by presidential daughter Ivanka Trump to grease the congressional wheels.

Right-of-center support for paid leave is not limited to Republicans in Congress. In 2015, right-leaning American Action Forum (AAF) published a report favorable to a federal paid-leave program, and in 2016, the AAF took a step further and backed it outright. Being egalitarian in nature, this idea strongly resembles a proposal from Senator Kirsten Gillibrand (D-NY).

The same idea as the AAF has put forward is being promoted by the American Enterprise Institute. This formerly conservative think tank praises paid family leave on the taxpayers’ tab as the next step in federal entitlements.

Putting aside obvious questions about constitutional limitations on government power, the glaring problem with paid family leave is its potential to become an enormous burden on US taxpayers. Realistic estimates place the potential annual outlays for this program as high as $391 billion per year, though under some conditions the yearly cost could surge past half-a-trillion dollars.

Perhaps the growing support for paid leave is facilitated by merry ignorance of its true cost. Trump is not innocent on this matter: according to Table S-6 of the president’s budget, the costs of this new entitlement would average a meager $1.85 billion per year for the next ten years, yet it would not add a dime to the federal deficit. The cost would be covered in part by savings in the unemployment benefits system, referred to as “re-employment services,” and by new revenue.

The president’s budget offers no clue as to how his paid-leave program would stay within a $2bn annual cost cap. Since others, who estimate a much higher annual cost, are more detailed in their calculations, it is reasonable to assume that when it comes to cost containment, the president’s proposal is on the optimistic side.

Experience is another reason to be skeptical of the president’s cost figure for paid leave. The federal budget is full of examples of programs that have become major cost items to taxpayers. Social Security, probably the best example of them all, was introduced in 1935 as a supplement to private retirement plans. It was intended to be nothing more than relief for poor and low-income individuals, yet over the years the program has become a comprehensive, mainstream entitlement program. Today it is the nation's retirement security backbone. In 2013, 64 percent of all eligible Americans received at least half of their income from Social Security.

To pay for Social Security, Congress raised the tax 20 times in 40 years, taking it up from two to 12 percent of taxable income.

Another example is the Food Stamp program, which was also created strictly for poverty relief. In 1964, as part of the War on Poverty, the program underwent comprehensive reforms and has since continued to expand. Today, under the acronym SNAP, it is no longer just a poverty-relief program. For example, during the Great Recession, 2008-2013, SNAP enrollment increased three times faster than the population below the poverty line.

SCHIP is a third example. Also known as Medicaid for Kids, the State Children’s Health Insurance Program was created in 1997 to serve only children in poor families. Yet only five years later, the program enrolled 24 percent of all minors. The poverty rate among the under-18 demographic was 16 percent. In 2012, SCHIP covered more than a third of all children in America.

One need not stretch his imagination to see how paid family leave, like so many programs before it, could become a big budget boondoggle. There is plenty of international experience to draw on, with Canada being at the forefront. Created in 1971 for a very limited purpose — to only provide a short period of maternitly leave — the program has expanded significantly and is now a comprehensive entitlement of outright Scandinavian proportions (PDF).

One of the many reforms took place in 2003, when the Canadian federal government doubled the number of paid-leave weeks parents could take. Today, Canadian parents can take 50 weeks off for every newborn child, courtesy of the taxpayers.

Trump’s proposal only pays for six weeks of parental leave. Is there anyone who believes that once it becomes law, his paid-leave program will not expand and cover more time, with more money?

Image: Gage Skidmore.

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