Policy tradeoffs in the paid family leave debate

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The newest addition to the paid family leave debate is a bipartisan proposal by Senator Bill Cassidy (R-LA) and Senator Kyrsten Sinema (D-AZ). As my colleague Aparna Mathur recently wrote, this “marks a major achievement in the history of paid leave legislation in the United States, with the introduction of the first bipartisan paid leave bill in Congress.”

The Cassidy-Sinema proposal is bipartisan, but when considered alongside two other leading paid family leave approaches before Congress (in addition to the many other proposals over the years), we are still left with three clear lingering policy questions. Compromise on these policy questions are necessary to move a federal paid leave policy forward.

(1) Raise taxes or repurpose existing revenues?

The leading bills currently in Congress propose two approaches to financing paid leave benefits — raising payroll taxes or repurposing existing funding. The leading Democrat proposal, the Family Act, contemplates increasing payroll taxes on employers and employees to fund 12 weeks of paid family leave benefits for the birth or adoption of a child as well as the care of an ill family member, or for one’s own illness. It proposes a new 0.4% payroll tax to pay for it, split between employees and employers. (Some are skeptical suggesting that a 2.9% increase is more in line with expected costs.)

Alternatively, Republican-sponsored legislation from earlier this year (the “New Parents Act” and the “CRADLE Act”) would allow new parents to draw forward their Social Security retirement benefits to pay for up to 12 weeks of leave for the birth or adoption of a child. The Cassidy-Sinema proposal would allow new parents to essentially take a no-interest loan against 10 years of their expected Child Tax Credit to provide them with $5,000 after the birth or adoption of a new child.

In 2018, the Congressional Budget Office (CBO) acknowledged that raising payroll taxes would have drawbacks, making the paid leave proposals to repurpose existing funding attractive. According to the report, “A drawback of the option [to increase payroll taxes] is that it would encourage people to reduce the hours they work. Another disadvantage of the option is that it would increase the tax burden of lower-income workers relative to that of workers with higher income.” These concerns would be compounded if payroll tax increases were needed to ensure the solvency of Social Security and to fund a new paid leave program, making payroll tax increases less desirable.

(2) Repurposing funding from where?

If raising payroll taxes is a non-starter for Republican lawmakers, the question is from where to repurpose funding? Using Social Security benefits repurposes funding for the elderly to children, while using the Child Tax Credit relies on funding already dedicated to children. Given that federal spending on children already is only a fraction of spending on the elderly, lawmakers should be clear about the benefits of protecting retirement contributions at the expense of child-related federal spending.

(3) Compulsory or voluntary?

The Family Act is a compulsory social insurance program, meaning that every worker and their employer would be required to pay more payroll taxes to fund it, whether they intend to use paid leave or not. Benefits to creating a new social insurance program include that risk is spread across workers and a dedicated funding stream covers program costs. But the downside is clear too: workers that are less likely to have children subsidize other families.

Alternatively, the Cassidy-Sinema proposal is voluntary in that new parents can choose to use their expected Child Tax Credit and then take a reduced credit over the next 10 years. The proposals to repurpose Social Security contributions is a hybrid in that people are required to make contributions, but the proposal would give them flexibility in how to use it.

Although most countries with a national paid family leave policy use a social insurance-type program to fund it, a voluntary program has some appeal because it gives families flexibility to decide when to take time off and recognizes the inequity of requiring people to contribute to a paid leave program that they may never need.

It is encouraging to see various options for paid family leave being proposed by lawmakers of both parties. But until compromises emerge on these three broad policy questions, a federal paid leave policy in the US will remain out of reach.



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