Would a Parental Leave Benefit Increase Support for Social Security? Should We Want That?

This article appeared on EconLog on March 26, 2018.
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Earlier this year, Kristin Shapiro and Andrew Biggs described in a Wall Street Journal op-ed how the United States could finance a universal paid leave benefit for new parents without any tax increase or employer mandate. (Disclosure: Shapiro is a personal friend and Biggs a longtime professional acquaintance of mine; I think highly of both.) Following an idea Shapiro developed for the Independent Women's Forum, their op-ed explains how Social Security could offer the benefit through its current financing if the people who take parental leave would accept a delay in their future retirement benefit. For example, a 12-week parental leave benefit at roughly half of current earnings could be offered in exchange for a similar-length delay in retirement benefits.

Opinion polls indicate that a majority of Americans support a government mandate for family leave, but the question is how to cover the cost. American employers already shoulder a considerable tax and government mandate burden that weakens the demand for labor (resulting in less employment and lower wages), and few people are willing to pay more in taxes to subsidize family leave. Putting aside my libertarian priors and concerns about unintended consequences, I think the Social Security idea is a clever compromise that would provide the leave that progressives want without the burdens that budget hawks and many conservatives oppose. Unsurprisingly, some pragmatic lawmakers have expressed interest in the idea.

What is surprising, though, is the sharp opposition to the idea from some progressives. A few weeks after the Shapiro-Biggs op-ed, New York Times writers Tara Siegel Bernard and Claire Cain Miller posted a column outlining three concerns over "a Republican plan for paid leave":

• Social Security already faces shaky finances.
• The delay in retirement benefits would mean an overall reduction in people's–predominantly women's–retirement benefits.
• The parental leave benefit would treat Social Security "as an individual account rather than a social insurance program." As Kathleen Romig of the Center on Budget and Policy Priorities says in the article, "This is a significant philosophy shift that doesn't look at [Social Security] like an insurance program where we are all in it together, but an individual asset you can tap to pay for your individual needs.

But with the exception of part of Romig's comment (I'll explain that in a moment), none of those concerns seem too worrisome.

The short delay in retirement benefits means the parental leave benefit would have no long-run effect on Social Security's finances (assuming future policymakers won't prove time-inconsistent and "forgive" the offset). There would be a short-run cost between people's taking advantage of parental leave and their later delayed retirement, but as Shapiro explains in her paper, that cost is tiny relative to Social Security's overall finances. I'd add that the short-run cost could be covered easily with government bonds, which sell at very low real rates.

It is true that the delay in retirement benefits is equivalent to a benefit cut. There is no free lunch, as Milton Friedman said of government benefits. But if universal family leave is important enough to require government intervention, this idea is as close to a good-but-cheap lunch as policymakers can hope to find. Besides, given Americans' increased life expectancy (especially women's), three months' delayed retirement in a worker's 60s seems modest trade-off for paid leave as a new parent–especially when the individual gets to choose whether to make that trade-off.

What about the "philosophy shift" in Social Security that a parental leave program would represent? If that means a move away from "social insurance" that "we are all in … together," then it's unclear why the proposed parental leave benefit wouldn't be part of that social insurance that we're all in together.

However, I think there is something to Romig's concern that if this idea is enacted, it could lead people to consider Social Security "an individual asset you can tap to pay for your individual needs."

If we accept the notion that Social Security's retirement benefit is "insurance," then it's pretty crummy insurance for a number of reasons:

  • It's high-cost: formally a 6.2 percent income tax on workers plus a 6.2 percent tax on employer payrolls, along with the deadweight losses from the taxes' negative incentives on labor and employment.
  • It provides lousy benefits, as underscored by benefit calculators and recipients' complaints about the size of their checks.
  • It's terribly inflexible, offering minimal options for qualifying ages or benefit levels, let alone other opportunities to use those funds when they are needed.
  • It's compulsory; people and their employers must pay into Social Security regardless of how well it suits their needs or whether they have more-valued uses for their money.
  • Finally, it's incredibly risky in at least three different ways:
    1. Workers only receive the retirement benefit if they reach the qualifying age, and those payments continue only as long as recipients or their spouses live.
    2. It's dependent on U.S. demographic and wage trends–and right now those trends and current law dictate the program will have to cut its benefits by roughly 25 percent in about 15 years.
    3. It's overseen by politicians, who show little consensus on how to manage the program responsibly.

Given those reasons, I'm constantly surprised by Americans' strong support for Social Security in public opinion polls, even as they express skepticism on how much they can count on it for their own retirements. That support discourages policymakers from reforming Social Security to address its problems and make it more beneficial to Americans.

However, public support may change following the benefit cuts 15 years from now. At that time, Medicare and Medicaid will be consuming ever-larger shares of federal and state budgets, as will debt service on the federal level and retired public employee costson the state and local level. I believe that public support for Social Security will fall once workers see so much of their tax money going to items other than public benefits they enjoy. As its support falls, the likelihood of meaningful, positive policy change to Social Security will increase.

But if the parental leave idea is adopted, workers will become eligible for an immediate benefit from Social Security, and that may buttress its public support. If Romig's concern comes to pass and Social Security evolves more broadly into "an individual asset you can tap to pay for your individual needs," that would provide many more immediate benefits to workers, resulting in even stronger public appreciation and support for the program.

The question is, would that be a good thing? Resuming my libertarian priors, I agree with my Cato colleagues Vanessa Brown Calder and Chris Edwards that people would be better off if, instead of paying taxes to provide themselves private goods like parental leave or retirement income, they could keep their money and buy the goods themselves or voluntarily band together to buy the goods (though I should note that, apart from savings, no such private "family leave" good is currently available that I'm aware). Unfortunately, I don't see that policy change happening anytime soon.

That leaves this libertarian with a second-best dilemma: should I embrace the parental leave idea and other proposals to make Social Security more of an individual asset (perhaps even evolving into the Universal Savings Accounts that Edwards and another of my Cato colleagues, Ryan Bourne, discuss)–which would make the program more beneficial to people and less crummy? Or should I oppose such changes and hope that, when Social Security's retirement benefit shrinks in 15 years, public pressure will force policymakers to radically reform the program into something more beneficial to people?

I don't have an answer to that question (though it's hard for me not to root for Shapiro and Biggs). I would be interested in reading your answers and thoughts in the comments below.