With Democrats‘ dream of passing a $3.5 trillion budget reconciliation bill in peril, recent reporting suggests that they may get one item on their wish list: a new, permanent federal entitlement to paid family and medical leave. The primary question appears to be whether the proposed entitlement will be modeled after Senator Kirsten Gillibrand‘s (D-N.Y.) FAMILY Act or Representative Richard Neal’s (D-Mass.) universal paid leave proposal. But passing either of these proposals through a rushed, partisan process could hurt workers and endanger Social Security and Medicare. Moderate Democrats would be wise to put this effort on hold as part of Senator Joe Manchin‘s (D-W.V.) “strategic pause,” and to consider alternative paths to paid leave.
Sen. Gillibrand would have the Social Security Administration provide the paid leave benefits, funded by a new payroll tax on all workers. The AARP understandably has expressed concern that her legislation would undermine Social Security. Given the recent announcement that the Social Security and Medicare trust funds will be insolvent by 2035 and 2026, respectively, it would be political malpractice to tap a funding source (payroll taxes) that likely will be needed to shore up our existing entitlement programs. According to the Congressional Budget Office, Sen. Gillibrand also drastically understates the cost of her legislation, meaning that she would gift America its third bankrupt entitlement.
Rep. Neal conveniently avoids this problem by writing the Treasury a blank check to pay for the benefits out of general revenue. This is smart politics — paid leave polls well in theory, but support falters once increased taxes are mentioned — but irresponsible policy, given the looming debt ceiling and historic budget deficits.
Notwithstanding these fiscal concerns, if Democrats manage to pass a paid leave entitlement as part of the upcoming reconciliation legislation, they likely will be disappointed with the results. A recent National Bureau of Economic Research study of California’s paid leave entitlement found that it decreased new mothers’ employment by 7 percent and wages by 8 percent, and that it tended to reduce the number of children born to women who used the benefit — precisely the opposite of the program’s intended effect.
A new paid leave entitlement will likely tend to benefit middle- and upper-income families at the expense of our most vulnerable workers. The beneficiaries of paid leave entitlements tend to skew wealthier than the general population. For example, in California, more than 20 percent of paid leave claimants are in the highest income bracket, compared to only 4 percent in the lowest bracket. In San Francisco, 79 percent of new moms with household incomes above $97,000 received government leave benefits, but only 36 percent with household incomes under $32,000 received such support.
These disparities are consistent with the results of paid leave programs in other countries, which also have a negative redistributive effect. Experts have found that Canada’s paid parental leave program discriminates against low-income households and contributes to “systemic and structural inequality.” And economists have described Norway’s expanded paid leave program as a “pure leisure transfer to middle and upper-income families which are eligible at the expense of some of the least well off in society.”
Many factors contribute to this problem, including insufficient wage replacement, administrative barriers, and poor awareness. Benefits under Sen. Gillibrand’s proposal would replace up to 66 percent of a claimant’s income, and Mr. Neal’s proposal would replace up to 85 percent. How many families living paycheck to paycheck can afford to participate in a program that would reduce those paychecks by 15 or 33 percent? And even if they could afford to participate, low-income families are about half as likely as high-income families to be aware of their entitlement to paid leave benefits, if California’s experience is indicative.
In recent years, Republicans have introduced several alternative proposals to support paid leave that could avoid some of the pitfalls of a new entitlement. For example, the federal government could offer paid family and medical leave insurance on a voluntary basis and could let new parents pull forward a small portion of their future benefits, such as the Child Tax Credit, after the arrival of a child. These proposals would empower workers by letting them choose to participate in a paid leave program based on whether the program is right for their family.
Paid family and medical leave is an important issue that deserves serious consideration. Unfortunately, progressive policymakers disserve their principles by rushing to pass legislation that threatens existing entitlement programs and risks exacerbating inequality. The strongest paid leave legislation will result from policymakers working across the aisle — not a slapdash process blind to cost and unintended consequences.