Family leave entitlement a very bad idea
Friday, March 2, 2018
One in five Americans is on Medicaid, and Medicare and Social Security will require huge future tax increases. Yet some in the ostensible party of limited government think this is the perfect time to add a new entitlement for paid family leave.
Florida Senator Marco Rubio and his sidekick Mike Lee of Utah are teaming up with Ivanka Trump to design a plan for federal paid leave. President Trump has endorsed the concept, and his budget includes an outline involving unemployment insurance.
A proposal gaining traction would open up Social Security to finance family leave. New parents could choose to draw on their retirement benefits for some length of time, perhaps 12 weeks, in exchange for delaying Social Security payments for a roughly comparable period.
The plan would supposedly pay for itself because workers would merely change the time in their lives when they collect Social Security benefits. No mandate on employers, no payroll tax increase. Presto, a free political lunch.
The first problem is that this would shift the burden of providing the benefit from the private economy to government. Academic evidence shows that family leave keeps employees in their jobs and can make them happier or more productive, which is one reason many companies pay for it. But why pay when the government offers 12 weeks?
Proponents say this won’t happen because the Social Security payout will only furnish about 45 percent of the average worker’s wages, but that still changes business incentives. Some companies might add more money or more weeks, but they’ll stop paying for that 45 percent of the first 12. This “crowd out” effect is a hallmark of all entitlements — such as Medicaid’s displacement of private health insurance.
Republicans would be making an enormous mistake to interrupt decades of business progress toward more generous family policies. CVS, Lowe’s and Walmart are among the companies that have announced new or expanded paid leave benefits since the GOP’s tax reform lowered the cost of wealth creation. Why not let faster growth and tight labor markets create more incentive for private family leave?
Also strap yourselves in for the politics. Social Security started as a 2 percent payroll tax to support the elderly poor, but the tax is now 12.4 percent and the program is still severely under-funded. We look forward to Ivanka explaining that politicians raiding Social Security for a new benefit pose no financial risk to Florida retirees.
Social Security purports to allow a person to earn benefits over a career, but that work requirement will also be a casualty of this family-leave raid. No politician is going to deny leave to a pregnant 22-year-old merely because she hasn’t paid much into Social Security. Watch the social right demand a comparable cash benefit for stay-at-home moms, and also dads, or caring for an elderly dependent.
And wait until you meet the focus group known as Congressional Democrats, who are already dismissing the proposal as unfair for forcing women to choose between children and retirement. Democrats will quickly wipe out the deferral period so everyone is entitled to leave now and get the same retirement benefits later. And once Republicans open Social Security for family leave, the door will open for other social goals. Why not college tuition?
Some call these slippery-slope arguments, and they are, but every entitlement since Revolutionary War pensions has skied down this slope of inexorable expansion. Disability started as limited insurance but now sends checks to roughly nine million people. Medicaid was intended to cover the vulnerable and disabled but today dozens of states cover childless working-age adults above the poverty line.
The pressure to raise payroll taxes to finance Social Security and Medicare is already growing as more Baby Boomers retire. Complicate Social Security with new spending purposes, and the drive to raise the $128,400 income cap on the 12.4 percent payroll tax will be unstoppable.
With their latest budget deal, the GOP is staring at annual deficits of $1 trillion a year. Republicans should be reforming entitlements, not expanding them.
The Wall Street Journal