Support Parental Leave by Saving Not Spending

Some conservative writers are proposing to raid Social Security for the costs of a new parental leave program. Proponents are selling it as a sort-of free lunch. The plan would be “self financing” says the IWF’s Kristin Shapiro because “new parents would agree to defer their collection of Social Security benefits upon retirement for the period of time necessary to offset the cost of their parental benefits.”

But Social Security is not a savings program with a pool of assets to draw on. If the government starts mailing checks to millions of new parents, the only “financing” would be more federal borrowing. What Shapiro calls $7 billion a year in “parental benefits” would be $7 billion more in government spending. What Shapiro calls “self financing” would be more government debt.

In theory, the government would delay retirement handouts for participating individuals three decades down to the road. But, if enacted, lobby groups and politicians would get to work undoing those future savings. And if this sort of accounting trick is used for spending on parental leave, then the flood gates would be opened for Social Security spending on home purchases, job training, and other trendy causes.

What ever happened to personal saving? Humans can look ahead and plan, and they have been doing so since the beginning of time. Personal saving is the most powerful financing tool. But the more the government hands out benefits—for retirement, health care, unemployment, parental leave, and many other things—the more it undermines the innate and responsible saving incentive. The more the nanny state spends, the more it sabotages a culture of savings and the practical ability to save as taxes rise.

Young people thinking about having children should start setting aside some of their paychecks. Young people should be taught that kids are expensive, and they should plan accordingly. Alas, personal responsibility and saving are not the starting points for most policy discussions these days.

Put aside parental leave, and think about farm programs. The government spends $20 billion a year to cushion farmers from fluctuations in prices and crop yields. It apparently never occurs to policymakers that farmers should be using their own savings to level out their consumption over time. When corn prices are high, they should be saving the extra profits. When corn prices are low, they can withdraw. Wouldn’t that be easier than writing thousands of pages of farm legislation and extracting $20 billion a year from taxpayers?

At the bottom of Shapiro’s piece, it says the IWF believes that women are “better served by greater economic freedom” than “big government.” Thus, for parental leave, the focus should be on personal responsibility and savings rather than big government spending.

Part of the solution is to cut taxes on saving and make saving simpler, as Ryan Bourne and I discuss in our study on Universal Savings Accounts (USAs). The tax code includes numerous savings vehicles for retirement, but all savings are beneficial. USAs would facilitate personal savings to cover health care, education, parental leave, and many other costs. If Americans had larger pools of savings, they would be more self-sufficient and less dependent on government.

When thinking about policy reforms, the first goal should be to increase the self-sufficiency of Americans and reduce today’s overreliance on government. USAs would not solve every problem, but they would allow Americans to better prepare for their own financial challenges.

Vanessa Brown Calder critiques the paid leave proposals here and here.