Problems with Republican Proposal for Paid Leave

A new federal paid leave idea has been produced, promoted, and endorsed by individuals on the right. And now Republican legislators like Marco Rubio, Joni Ernst, and Mike Lee are getting behind it.

Advocates propose using Social Security as a benefit bank for paid leave – the idea is that parents could withdraw Social Security benefits today if they defer collecting benefits later. Of course, if advocates want to provide paid leave, a better idea is cutting Social Security benefits and payroll taxes so new parents don’t have to ask the government for their money back.

Still, it’s a clever idea and maybe the least-bad proposal for federal paid leave. But that does not mean the Social Security paid family leave (SS PFL) proposal is a good idea on its own merit. As described in The Hill yesterday, government-provided paid leave has harmful consequences and is not politically supported. 

Setting that aside, Social Security is a program with an assortment of problems, and allowing beneficiaries to borrow against future benefits does not improve the current model. Given how integral Social Security is to the current proposal, it’s worth a reminder just how deep those issues run.

First, Social Security will shortly be insolvent. Due to Social Security’s structure and demographic trends which include an increase in life expectancy, a decrease in fertility rates, and slowing wage growth, the value of Social Security’s obligations is estimated to exceed the value of its taxes in present value by $8.6 trillion over the next 75 years. (And no, providing paid parental leave and other parental benefits won’t change fertility trends meaningfully.)

In short, there are increasingly more retirees collecting benefits for every worker paying for them. To illustrate, in 1950 there were 12 people older than 65 for every 100 people of working age. By 2050, there are expected to be 35 people older than 65 for every 100 people of working age.

This makes Social Security unsupportable in its current form. The program is already running a cashflow deficit and in trouble financially. Indeed, the Social Security Administration (SSA) projects the present-value of Social Security's unfunded financial obligation is equal to $32.1 trillion through the infinite time horizon. 

How will adding SS PFL change that? AEI's Andrew Biggs says that in the long-run the SS PFL proposal is budget neutral. But in the short-run, the proposal increases Social Security’s financial obligations, thereby hastening Social Security’s decline toward insolvency. It would be one thing if Social Security was based on personal savings accounts and the proposal allowed people access to their savings more flexibly. But Social Security has no pool of savings, so the proposal means going deeper into debt to provide parental benefits. 

The most generous argument is that the SS PFL proposal does everyone a favor, because it forces lawmakers to grapple with Social Security’s problems sooner than they would otherwise. What will that reform look like? If historical precedent is any indication, it will involve increasing taxes and perhaps reducing benefits.

Social Security taxes have already grown substantially over Social Security's lifetime: from a payroll tax of 2 percent at its inception in 1937 to a tax of 12.4 percent today. Indeed, during Social Security’s most recent reform in 1983, taxes were raised in a variety of ways. Recent proposals for reforming Social Security have also suggested expanding taxes to pay for the program.

Of course, benefits have also been reduced in past reforms. But with more obligations to more interest groups (parents, the sick, etc.) under a new version of the program, it will be increasingly difficult to reduce benefits because more groups will be impacted by cuts. 

It seems that an underlying premise of the SS PFL proposal is that nothing major can be done to reform Social Security in the short-term anyway, so let’s enjoy the ride down. Another underlying premise is that Democrats will eventually get their way on paid leave, so let’s preempt it and give them what they want.

Unfortunately for advocates, the current proposal is not what Democrats want, and it’s unlikely they’ll be satisfied. The SS PFL proposal conveniently leaves the door wide open to provision of more generous benefits in the future.

In the meantime, Republicans will have conceded substantial ground, hastened Social Security's decline, and legitimized the provision of paid parental leave at the federal level.  If history is any indication, more taxes will be part of the solution.