Feeds:
Posts
Comments

Posts Tagged ‘Parental Leave’

During the 2016 presidential campaign, I was very critical of Donald Trump’s proposal to expand the entitlement state with a new program for paid parental leave, just as I was very critical of a similar proposal from Hillary Clinton.

Neither candidate offered much detail, but it was reckless and irresponsible for both of them to propose any sort of new tax-and-transfer scheme when the country already faces a long-run crisis because of entitlement programs.

And that looming entitlement crisis explains why I also criticized a paid-leave proposal developed by AEI and the Urban Institute.

But not all parental leave proposals involve a net increase in the fiscal burden of government. Senator Marco Rubio and Congresswoman Ann Wagner have put forth a plan that would allow new parents to finance time off with newborns with money from Social Security, so long as they are willing to accept lower retirement benefits in the future.

The Wall Street Journal is skeptical of this kind of initiative.

Republicans should consider the consequences before signing up for a major expansion of the entitlement state. …Mr. Rubio…claims his benefit doesn’t expand government or create a new entitlement. But what is expanding government if not taking a benefit financed by private industry and administering it through a government program? Paid leave by definition entitles Americans to a de novo benefit… Mr. Rubio says leave will pay for itself by delaying retirement benefits… Does anyone believe those retirement benefits won’t be restored eventually, at least for the non-affluent? …The biggest illusion is that this proposal is a shrewd political move that will steal an issue from Democrats. In the real world they will see Mr. Rubio and raise. The National Partnership for Women & Families called the Rubio plan “reckless, irresponsible and ill-conceived” for making parents choose between kids and retirement. They want both. Once Social Security is open for family leave, Democrats will want to use it for college tuition, and why not a home downpayment?

Ramesh Ponnuru counters the WSJ, arguing in his Bloomberg column that the Rubio/Wagner plan merely creates budget-neutral flexibility.

Senator Marco Rubio of Florida and Representative Ann Wagner of Missouri…have introduced legislation to let parents finance leave by either delaying taking Social Security benefits when they retire or getting slightly reduced benefits. …The proposal doesn’t raise federal spending over the long run, but only moves benefits forward in time from a person’s retirement to her working years. …the proposal is better seen as a way of adding flexibility into an existing entitlement than of creating one. …Because Democrats will demand more generous leave policies, the Journal warns that the Rubio-Wagner proposal will backfire politically. But the bill is an attempt to satisfy a demand among voters for help with family leave. It’s not creating that demand. Republicans can choose whether to counter Democratic policies with nothing, or with an idea that gives families a new option at no net long-term cost to taxpayers. The political choice should be easy.

Ramesh makes several good points. There is a big difference between what Rubio and Wagner are proposing and the plans that involve new taxes and additional spending.

And he even cites the example of a provision in the Social Security system, involving early benefits for disabled widows, that hasn’t resulted in a net increase in the burden of government.

So what’s not to like about the plan?

Plenty. At least according to John Cogan of the Hoover Institution, who has a column warning that it is very unrealistic to hope that politicians won’t expand an entitlement program.

Mr. Rubio’s well-intentioned plan begins by promising a small, carefully targeted benefit and assuring us that it won’t add to the long-run public debt. But history demonstrates that is how costly entitlement programs begin. …New programs initially target benefits to a group of individuals deemed particularly worthy at the time. Eventually the excluded come forth to assert that they are no less worthy of aid and pressure lawmakers to relax eligibility rules. …The broadening of eligibility rules brings yet another group of claimants closer to the boundaries of eligibility, and the pressure to relax qualifying rules begins all over again. The process…repeats itself until the entitlement program reaches a point where its original noble goals are no longer recognizable. …Medicaid and food-stamp programs followed a similar path. These programs were originally limited to providing health and nutrition assistance, respectively, mainly to supplement welfare cash assistance. Both programs now extend aid to large segments of the population who are not on cash welfare and in some cases above the poverty line. Medicaid assists 25% of the nonelderly population. Food stamps pay a major part of the grocery bills for 14% of the nonelderly population. …For more than 200 years, no entitlement program has been immune from the expansionary pressures…and there is no earthly reason to think Mr. Rubio’s plan will prove the exception.

Here’s my two cents on the topic (the same points I made when addressing this issue earlier in the year).

  1. From a big-picture philosophical perspective, I don’t think the federal government should have any role in family life. Child care certainly is not one of the enumerated powers in Article 1, Section 8, of the Constitution. Proponents of intervention routinely argue that the United States is the only advanced nation without such a program, but I view that as a feature, not a bug. We’re also the only advanced nation without a value-added tax. Does that mean we should join other countries and commit fiscal suicide with that onerous levy?
  2. Another objection is that there is a very significant risk that a small program eventually become will become much larger. …once the principle is established that Uncle Sam is playing a role, what will stop future politicians from expanding the short-run goodies and eliminating the long-run savings? It’s worth remembering that the original income tax in 1913 had a top rate of 7 percent and it only applied to 1/2 of 1 percent of the population. How long did that last?
  3. Finally, I still haven’t given up on the fantasy of replacing the bankrupt tax-and-transfer Social Security system with a system of personal retirement accounts. Funded systems based on real savings work very well in jurisdictions such as AustraliaChileSwitzerlandHong Kong, and the Netherlands, but achieving this reform in the United States will be a huge challenge. And I fear that battle will become even harder if we turn Social Security into a piggy bank for other social goals. For what it’s worth, this is also why I oppose plans to integrate the payroll tax with the income tax.

My goal today is not to savage Sen. Rubio and Rep. Wagner for their proposal. For all intents and purposes, they are proposing to do the wrong thing in the best possible way.

If it’s a choice between their plan and some as-yet-undeveloped Trump-Pelosi tax and transfer scheme, the nation obviously will be better off with the Rubio-Wagner approach.

But hopefully we won’t be forced to choose between unpalatable and awful.

P.S. This debate reminds me of the tax reform debate in 2016. Only instead of doing the wrong thing in the best possible way, Senators Rand Paul and Ted Cruz had tax plans that did the right thing in the most risky way.

Read Full Post »

Back in 2015, I wrote some columns about policy differences with folks who normally would be considered allies.

  • In Part I, I defended the flat tax, which had been criticized by Reihan Salam
  • In Part II, I explained why I thought a comprehensive fiscal package from the American Enterprise Institute was too timid.
  • In Part III, I disagreed with Jerry Taylor’s argument for a carbon tax.

Now it’s time for another friendly spat.

A handful of right-of-center groups and individuals have decided to embrace a new entitlement for paid parental leave.

Such as the Independent Women’s Forum.

…the United States is the only industrialized nation that does not mandate or subsidize at least some form of paid parental leave. …there is a way for the federal government to provide paid parental leave to every worker in the United States at no additional cost: offer new parents the opportunity to collect early Social Security benefits after the arrival of their child in exchange for their agreeing to defer the collection of their Social Security retirement benefits. …New parents deserve this choice.

Along with the American Enterprise Institute (cooperating with the left-leaning Urban Institute).

…public interest in creating a federal paid family leave policy has grown. …we came up with a compromise proposal… Its key elements are benefits available to both mothers and fathers, a wage-replacement rate of 70 percent up to a cap of $600 per week for eight weeks, and job protection for those who take leave. It would be financed in part by a payroll tax on employees and in part by savings in other parts of the budget. …we felt an obligation…this was better than doing nothing when the US is the only developed nation without a national paid leave policy.

And Ramesh Ponnuru of National Review.

The more I’ve followed the debate, the more I’ve supported the idea. …there are certain similarities between the personal-account and paid-leave ideas that ought to reduce conservative skepticism of the latter. …there’s a mental block that’s keeping the paid-leave objectors from seeing how much these debates have in common.

Kristin Shapiro of IWF and Andrew Biggs of AEI elaborated on a version of this idea in a column for the Wall Street Journal.

The U.S. is the only industrialized nation without a law guaranteeing workers paid parental leave. The idea has broad public support, but how to pay for it? One idea is to mandate that employers fund it, but economists find employers offset the cost by reducing wages for female employees. …Our proposal is simple: Offer new parents the opportunity to collect early Social Security benefits for a period—say, 12 weeks—after the arrival of their child. To offset the cost, parents would agree to delay collecting Social Security retirement benefits… We estimate that to make the Social Security program financially whole, a parent who claimed 12 weeks of benefits would need to delay claiming retirement benefits by only around six weeks. …This idea should be considered as Congress turns to entitlement reform. It’s a fiscally responsible opportunity to help parents and children.

All of this sounds nice, but there are several reasons why I’m very skeptical.

But let’s first distinguish between a very bad idea and a somewhat bad idea. The AEI-Urban scheme for a payroll-tax-funded paid leave program is the very bad idea. The United States already has a baked-in-the-cake entitlement crisis, so the last thing we need is the creation of another tax-and-transfer program.

So I’ll focus instead on the IWF-designed plan to enable parents to get payments from Social Security when they have a new child.

I have three objections.

  1. From a big-picture philosophical perspective, I don’t think the federal government should have any role in family life. Child care certainly is not one of the enumerated powers in Article 1, Section 8, of the Constitution. Proponents of intervention routinely argue that the United States is the only advanced nation without such a program, but I view that as a feature, not a bug. We’re also the only advanced nation without a value-added tax. Does that mean we should join other countries and commit fiscal suicide with that onerous levy?
  2. Another objection is that there is a very significant risk that a small program eventually become will become much larger. I haven’t crunched the numbers, but I assume the plan proposed by Shapiro and Biggs is neutral. In other words, the short-run spending for parental leave is offset by future reductions in retirement benefits. But once the principle is established that Uncle Sam is playing a role, what will stop future politicians from expanding the short-run goodies and eliminating the long-run savings? It’s worth remembering that the original income tax in 1913 had a top rate of 7 percent and it only applied to 1/2 of 1 percent of the population. How long did that last?
  3. Finally, I still haven’t given up on the fantasy of replacing the bankrupt tax-and-transfer Social Security system with a system of personal retirement accounts. Funded systems based on real savings work very well in jurisdictions such as Australia, Chile, Switzerland, Hong Kong, and the Netherlands, but achieving this reform in the United States will be a huge challenge. And I fear that battle will become even harder if we turn Social Security into a piggy bank for other social goals. For what it’s worth, this is also why I oppose plans to integrate the payroll tax with the income tax.

Now let’s see what others have to say about a new entitlement for parental leave.

Veronique de Rugy of Mercatus explains for National Review why Ramesh’s support for a new federal entitlement is the wrong approach.

…we don’t currently have a national parental-leave entitlement. Yes, the plan he’s talking about isn’t as bad as what Hillary would propose, but it still assumes that the federal government should be playing a role in this. Let’s not pretend otherwise. It relies on the government-run Social Security system, and it increases spending for a good while. That’s regress, not progress. And we also need to be realistic. Once the door has been opened, the Left will radically expand the scheme in ways that none of us like. And, to be honest, I can already hear future conservatives demanding that the program be expanded because parents who have to retire a few months later because they use paid leaves pay “a retirement penalty” compared to non-parents. …my point of reference for judging this plan is economic freedom and smaller government involvement. If you prefer more pro-family benefits even at the risk of growing the government, then we won’t agree.

Writing for Reason, Shikha Dalmia also is a skeptic.

…this is a flawed proposal that’ll do more harm than good, including to its intended beneficiaries. …The scheme will incentivize more workers to take off and for longer periods of time. This will be especially disruptive for small businesses and start-ups that operate on a shoestring budget and can’t spread the responsibilities of the absent workers across a large workforce. They will inevitably shy away from hiring young women of childbearing age. This will diminish these women’s job options. …Furthermore, it isn’t like Social Security has a ton of spare cash lying around to dole out to people other than retirees. The program used to generate surpluses when its worker-to-retiree ratio was high. But this ratio has dropped from 42 workers to one retiree in 1945 to less than four workers per retiree now. And even though payroll taxes have gone up from 2 percent at the program’s inception to 12.6 percent now, the system is still taking in less money than it is paying out in benefits, because of all the retiring baby boomers. …It is also beyond naïve to think that once the government is allowed to dip into Social Security to pay for family leave at childbirth, it’ll simply stop there. Why shouldn’t families taking care of old and sick parents get a similar deal? Liberals are already floating proposals to use Social Security for student loan forgiveness. The possibilities are endless.

The Wall Street Journal opined against the idea last month.

…some in the ostensible party of limited government think this is the perfect time to add a new entitlement for paid family leave. …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? …This “crowd out” effect is a hallmark of all entitlements… Also strap yourselves in for the politics. Social Security started as a 2% payroll tax to support the elderly poor, but the tax is now 12.4% and the program is still severely under-funded.

The WSJ shares my concerns about a small program morphing into a huge entitlement.

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? …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.

If you want more information, I had two columns last year (here and here) explaining why federally mandated parental leave is a bad idea.

To put the issue in context, we should be asking whether it makes sense for the government to make employees more expensive to employers. And since this proponents will probably sell this new entitlement as being good for new mothers, it’s worth pointing out that even a columnist for the New York Times admitted that women actually get hurt by such policies.

Remember, if someone says the answer is more government, they’ve asked a very silly question.

Read Full Post »

%d bloggers like this: