The Real Problem with Paid Family Leave

If it were up to a group of congressional Republicans and conservative allies, the government would get involved in a whole new realm of what had been, up to now, in the private sphere: paid family leave. Senator Marco Rubio (R-Fla.) just introduced a bill that would allow families to use their future Social Security benefits to take time off today, and pay them back by deferring retirement by several weeks per child decades down the road.

On the plus side, the plan doesn’t involve that mandating employers provide paid leave to employees, and it piggybacks off an existing entitlement program rather than starts a new one from scratch. Its apparent simplicity and purpose, topped with the appealing claim that it wouldn’t add to the budget deficit, explains some of the support it has received.

The Conservative’s Free Lunch

According to the Independent Women Forum (IWF), which originated the plan, the Rubio bill is the elusive free lunch we’ve been looking for all these years. In a recent tweet storm, they explained that this solution “expands access to paid parental leave benefits without raising taxes, growing the government, or hurting workers’ economic opportunities.”

We are also told that it, “gives people the freedom, flexibility, and ability to access the benefits they’ve earned through a government program that already exists.” Finally, access to paid leave addresses an important need and want in our society, they claim.  

Let’s unpack this. First, contrary to what advocates would like us to believe, this issue is not a top priority for most Americans. According to a 2017 poll by the Pew Research Center, expanding access to paid family and medical leave ranks at the bottom of a list of 21 policy items.

In addition to a booming economy, the general population’s lack of concern might stem from the reality that the private sector is actually doing a fairly good job of providing this particular benefit. Data compiled by the Cato Institute’s Vanessa Brown-Calder show that even without the government mandating or paying for a paid parental-leave benefit, between 45 percent and 63 percent of women report already having access to paid leave.

Private vs. Public Provision

This should come as no surprise. Many companies understand that they will gain from providing this type of benefit to their workers as it leads to more satisfied employees, lower turnover rates, and higher productivity. When businesses can afford to offer paid family leave, they increasingly do it. And when they feel optimistic about their bottom line—as they did after the tax reform of 2017—they increase the benefit they already provide.

Now even if the private sector didn’t provide any paid leave, it would still be a bad idea to use Social Security to finance it. My colleagues Charles Blahous and Jason Fichtner and I just wrote a detailed paper on this exact topic. We lay out several reasons not to use the program, but also explain why the probability is low that the plan would be budget neutral in the long run.

See, on paper, the plan expands the scope but not the size of government, because the benefits used today are “repaid” tomorrow through deferred retirement. However, rarely do the finances of such programs conform to their designers’ original intentions.

Mission Creep

Over time we should not be surprised if eligibility is expanded (as it has been with other entitlement programs) to include, say, paid leave to care for aging parents or a spouse, or even to pay for college or the loss of a job. The duration of the benefit might also go up. Next, advocates for parents who have used the benefits will demand that it be paid for with general government revenue rather than through delayed retirement.

Given our past experience with entitlements, it requires a leap of faith to believe the plan will remain budget-neutral. It’s more likely to be transformed into an entirely new spending obligation, with all of the costs and market distortions that such entitlements create.

Insolvency on the Way

Then there’s the minor detail of the insolvency of Social Security, which will become impossible to avoid when the trust-funds’ IOUs are gone. Without the paid-leave program grafted onto it, that insolvency will happen by 2034. At that point, benefits will have to be cut by 21 percent.

Add paid leave into the equation and we can expect insolvency to come sooner than expected as parents draw benefits decades before they pay for it with delayed retirement. The result is that paying paid leave benefits will mean digging out of a bigger dollar hole to postpone Social Security insolvency. So much for no new taxes, budget neutrality, and all the feel good rhetoric surrounding the Rubio proposal.

Now, it is true that many women, particularly those with low-incomes, have no access to paid leave. I understand the desire to improve these women’s condition. But it will be at a cost to those you are trying to help.

One way to address this problem in a big government but targeted and transparent way would be for legislators to subsidize low-income workers when they need to take maternity leave. However, it is important to understand that this scenario will have consequences beyond the budget cost. The direct and unavoidable result will be that all childbearing-age, low-income women are likely to pay for their potential absence from work through lower wages as employers will assume they will have to fill out for them when they take time off. There is no avoiding that.

One final point: If the paid-leave program as envisioned by Rubio and IWF comes to see the light of day, how long do you think it will take for employers who currently provide the benefit to shift the burden onto their employees by asking them to use Social Security benefits?

The reality is that free lunches don’t actually exist. We have to be comfortable with paying for them.

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Veronique de Rugy

AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.