Why Using Social Security for Paid Family Leave Is a Bad Idea

COMMENTARY Social Security

Why Using Social Security for Paid Family Leave Is a Bad Idea

Jul 19th, 2018 6 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.
Congress should keep Social Security as an old-age program and allow market demand—instead of government command—to drive family leave policies. KenTannenbaum/Getty Images

Key Takeaways

Workers could receive the equivalent of their future Social Security benefits as paid family leave benefits today.

Before long, workers and families could become reliant on the government to meet their personal needs and significant life choices.

Employers and states are expanding workers’ access to paid leave, but a federal program could derail existing paid-leave policies and prevent new ones.

This year marks the first time in more than a quarter-century that Social Security has had to dip into its trust fund balance.

Since its theoretical trust fund is really just a bunch of IOUs, that means the government will have to issue $85 billion in publicly held debt this year—and $1.5 trillion over the next 10 years—in order to maintain scheduled benefits.

As such, now is not the time to add a new entitlement to Social Security, adding to short-term deficits and expanding benefit payments.

Yet that’s what a new proposal for paid family leave would do—increase Social Security’s scope and raise its costs.

Under the proposal, workers could receive the equivalent of their future Social Security benefits as paid family leave benefits today in return for delaying the future date at which they begin collecting Social Security’s old-age benefits.

It sounds tempting. Why not allow people to receive a benefit they are “entitled” to at a time when they may need it more, especially if it won’t—at least theoretically—cost the government any additional money?

But that’s a slippery slope. If workers can borrow from Social Security for paid family leave, why not also borrow from it for things like repaying student loans or putting a down payment on a home?

Before long, workers and families could become reliant on the government—instead of their own saving and budgeting—to meet their personal needs and significant life choices.

Social Security is broken. It has $14.3 trillion in unfunded obligations and is on track to run out of money in 2034. As it stands, workers have no legal claim to future Social Security benefits, as Congress can change or even eliminate them at any time.

Social Security needs to be fixed by redirecting the program toward its originally intended population, limiting the program’s growth and costs instead of expanding them.

Social Security is an old-age program that already consumes 12.4 percent of workers’ paychecks. Moreover, maintaining the program in its current state would require between 15 percent and 16 percent of workers’ paychecks. Adding a family leave program would inevitably drive up Social Security’s costs even further and leave workers with less income to meet their needs and preferences.

The Heritage Foundation estimates that using Social Security for paid family leave would add between $9 billion and $12 billion in new publicly held debt each year. It would also cause Social Security to become insolvent seven months earlier, bringing about seven more months of 21 percent benefit cuts.

As initially designed, the proposal attempts not to impose any long-term costs on the government or Social Security, because workers would trade paid-leave benefits today for delayed retirement benefits in the future.

The proposal’s authors estimated that workers could receive two weeks of paid leave for every one week of delayed retirement benefits (a 2-to-1 ratio). However, The Heritage Foundation estimated that it would cost workers up to twice that (a 1-to-1 ratio), and the Urban Institute estimated that the cost would be four times as much (a 1-to-2 ratio).

Moreover, the American Action Forum estimated that it would add $226 billion in government debt between now and 2034, when the notional Social Security trust fund is slated to run dry.

That’s all if the proposal stays as limited as its authors envision. If the proposed paid family leave program follows the same path as every other entitlement benefit in the history of the United States, its costs would be exponentially higher.

If, for example, a future Congress were to waive the requirement that workers delay their Social Security benefits if they use the program for paid family leave, The Heritage Foundation estimated, the program would not be cost-free, but rather cost $114 billion over just the first 10 years.

Further expanding the proposed paid family leave program to provide 100 percent of pay—instead of the roughly 50 percent replacement rate that Social Security provides—would bring the 10-year cost to $198 billion. And adding benefits for other types of non-maternal paid family leave would bring the 10-year cost to $231 billion.

Even that is an understatement, because it doesn’t take into account that a more generous federal paid family leave program would cause private employers to eliminate their paid family leave programs, shifting the cost to federal taxpayers.

Moreover, using Social Security for paid family leave could open the door to allowing workers to exchange future Social Security benefits for cash now to repay student loans or put a down payment on a home.

There are lots of ways the federal government can help make family leave more accessible to workers without creating a new national entitlement or expanding and weakening Social Security:

  • Pro-growth economic policies that result in higher family incomes so that they can afford to take leave. Recent reports show that large companies, such as Lowe’s and Chipotle, responded to the Tax Cuts and Jobs Act of 2017 by implementing new and expanded paid family leave programs.
  • The Working Families Flexibility Act would allow private employers to give their workers the option of accumulating 1.5 hours of paid leave in lieu of every hour of overtime. Workers who worked just two hours of overtime each week would accumulate four weeks of paid leave per year.
  • Universal savings accounts would help workers save money to use for paid family leave by eliminating one of the two layers of taxation on savings. Even without universal savings accounts, policymakers could allow workers to make penalty-free withdrawals from retirement accounts to use for paid family leave.
  • A payroll tax credit for private disability insurance. Private disability insurance policies typically includes at least six to eight weeks of maternity or pregnancy coverage, so in addition to improving the Social Security Disability Insurance program, an optional private disability insurance program could also increase access to paid family leave.
  • Reducing the regulatory burden on employers would also free up resources that could go toward more generous benefits, such as paid family leave or tuition reimbursement.
  • Allowing states to use their unemployment insurance programs for paid parental leave would be a way to expand access without creating a new federal entitlement.

Employers and states are expanding workers’ access to paid leave, but a federal program could derail existing paid-leave policies and prevent new ones.

Congress should keep Social Security as an old-age program and allow market demand—instead of government command—to drive family leave policies.

This piece originally appeared in The Daily Signal