Liberals’ FAMILY Act Would Hurt Low-Income Workers and Families

COMMENTARY Marriage and Family

Liberals’ FAMILY Act Would Hurt Low-Income Workers and Families

Mar 5th, 2020 3 min read
COMMENTARY BY
Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
If lawmakers want to help with family leave, they should reject the FAMILY Act, which would cost too much, serve too few, and become more of a burden on taxpayers over time.  freemixer / Getty Images

Key Takeaways

If liberals want to provide access to paid family and medical leave, they need to come up with a better solution than they have so far. 

The legislation is being sold to Americans as costing a “cup of coffee a week,” but it could end up costing a tank of gas instead.

The FAMILY Act’s provisions would fail to meet most workers’ leave needs, particularly those in the lowest income brackets.

If liberals want to provide access to paid family and medical leave, they need to come up with a better solution than they have so far. 

According to a recent analysis from the Congressional Budget Office, Democrats’ proposed Family and Medical Leave Insurance Act would fail to benefit most of the workers who need it and leave policymakers with a choice between rationed benefits or massive tax hikes.

That’s because, according to the CBO analysis, the new payroll tax revenues proposed to fund the initiative would fall short of the program’s expenses just one year after benefits were to begin.

As more and more people applied for benefits, the so-called FAMILY Act’s costs would soar to 240% of the program’s tax revenues in 2028, just six years after benefits are slated to start.

But because the legislation sets up a new unfunded entitlement program, Congress either would have to ration benefits—limiting who could take leave, for how long they could take it, and the amount of benefits they could receive—or else raise taxes. 

The legislation is being sold to Americans as costing a “cup of coffee a week,” but it could end up costing a tank of gas instead. According to the American Action Forum, a federal paid family leave program would cost the average American approximately $1,500 a year.

If you think that’s an exaggeration, America’s first entitlement program—Social Security—started out as a 2% payroll tax. Today, it’s 12.4%. And by 2040, it will have to be 16.6% to pay scheduled benefits.

The pain of higher taxes would be worst for low-income workers and families who, evidence shows, tend to lose more than they gain from government-paid family leave programs. 

There are many reasons for that reality, including lower awareness of the programs, inability to make ends meet with partial benefits (such as the FAMILY Act’s 66 percent benefit level), lower eligibility for government benefits, and rigid rules and administrative barriers. 

Consequently, government-run paid family leave programs are regressive, redistributing resources from low-income workers and families to middle- and high-income ones:

  • In California, 38% of the workforce has wages below $20,000, but only 1% of them use the state’s paid family leave program, and workers in the highest income bracket are five times more likely to file paid family leave claims.
  • Even in San Francisco, which provides 100% benefits, low-income mothers were only half as likely as higher-income mothers to receive government benefits.
  • New Jersey’s program was characterized as “simply unaffordable, even for middle-class families, many of whom still live paycheck to paycheck in high-cost New Jersey,” and criticized for “put[ting] many workers below the poverty level for the duration of their leaves, and push[ing] people who are already struggling deeper into poverty.” Recent expansions aimed at increasing awareness and use are projected to quadruple workers’ maximum payroll taxes.
  • Canada’s paid family leave programs have exacerbated class inequality as “the distribution of bene?ts is unbalanced and aids the social reproduction of higher-income families.”
  • In Norway, which expanded paid leave to 100% replacement rates for nearly all mothers, researchers found that “the extra leave benefits amounted to a pure leisure transfer, primarily to middle and upper income families.” They concluded that “the generous extensions to paid leave were costly, had no measurable effect on outcomes and [also had]poor redistribution properties.”

The FAMILY Act’s provisions would fail to meet most workers’ leave needs, particularly those in the lowest income brackets. Moreover, it would provide windfall benefits to employers and workers who already provide and have access to paid family leave.

Increasingly, employers are providing paid family and medical leave because their workers want it. With a strong economy and competitive labor market, employers find they can lose good workers and incur high turnover costs if they don’t provide paid leave.

Instead of implementing a one-size-fits-all federal program, policymakers should seek to build upon the recent increase in more flexible, generous, and accommodating employer-provided policies. 

One way to do that is through the Working Families Flexibility Act, which allows employers to give lower-wage, hourly workers the choice of accumulating “comp time” instead of pay for their overtime hours.

If lawmakers want to help with family leave, they should reject the FAMILY Act, which would cost too much, serve too few, and become more of a burden on taxpayers over time. 

Instead, they should take a closer look at the Working Families Flexibility Act and other measures which would encourage more flexible and accommodating leave options.

This piece originally appeared in The Daily Signal