There are better ways to expand access to leave at a similar cost.
Paid parental leave is a hot topic these days, and rightfully so. Only 14 percent of workers have access to paid family leave from their employers, according to the Bureau of Labor Statistics. Even when accounting for vacation days, sick days, temporary disability insurance, and state-based policies, the majority of workers do not get paid time off upon the birth or adoption of a child, according to the Council of Economic Advisers — a situation unheard of in the rest of the developed world.
In today’s modern economy, with the majority of parents working, this arrangement feels increasingly untenable. There’s evidence it also creates broader economic and social disruptions, such as mothers leaving their jobs, going on public assistance, or returning to work within days of giving birth for lack of other options, which can compromise the health outcomes of parent and child. So it’s good news that a bipartisan, bicameral group of legislators is tackling the issue of paid leave. But the group’s approach leaves much to be desired.
Senators Deb Fischer (R., Neb.) and Angus King (I., Maine) recently reintroduced the Strong Families Act, and Representatives Mike Kelly (R., Pa.) and Terri Sewell (D., Ala.) introduced companion legislation in their chamber for the first time. The bill would provide businesses with a 25 percent tax credit for wages paid during parental, family, or medical leave up to twelve weeks, and the program would end in five years unless a future Congress decided to continue it.
The bill has no additional regulations or mandates that might burden business, and it’s structured as tax relief instead of a new government program, which appeals to many conservatives. Importantly, this structure allows the bill to be included in tax-reform legislation this fall — a possibility strengthened by the fact that its House sponsors sit on the Ways and Means Committee — expediting its consideration relative to other-paid leave proposals.
There’s plenty to like about the bill and the progress it represents. Senator Fischer’s office in particular has been a conservative leader on paid-leave reform for years, well before it was the recognized issue that it is now. It’s good that others in Congress are following her lead. But the proposal as it currently stands has one really big problem: We have no idea if it would work. There are no public estimates about how much paid leave would increase under the Strong Families Act, and there are reasons to doubt its effectiveness. For example, significant portions of the credit are likely to accrue to companies that already have paid-leave policies in place because the tax credit does not distinguish between new and existing programs. Additionally, businesses tend to prefer certainty and may be reluctant to make big changes to their benefit structures to take advantage of a temporary government program. At best, business tax credits may pull forward paid-leave policies that would have been implemented in the future anyway, or encourage companies to provide a greater wage replacement than they currently offer.
Further, companies that are predisposed to offering leave tend to be firms employing higher-skilled and higher-wage employees. Business tax credits are likely to be the least effective for the people who arguably need paid leave the most — low-skilled, low-wage employees. Given the constraints of the federal budget and the value that conservatives place on limited government, assistance should be directed to these workers in particular, rather than accruing all the way up the income spectrum and to big businesses.
The latest version of the Strong Families Act is targeted to employees earning $72,000 or below in attempt to reach these and more middle-wage employees. But such workers have the least access to paid leave from their employers today largely because they are more easily replaceable, which would not change with a tax credit.
The effectiveness question is not lost on the bill’s authors. Supporters of the Strong Families Act say that the whole point of the bill is to test this question, and the bill includes a Government Accountability Study at the end to assess whether tax credits did indeed expand paid-leave access. But the reality is that investment in this bill — with its five-year time horizon and hefty price tag — is likely to preclude investment in other paid-leave programs that have a documented record of success, especially for working parents struggling to make ends meet. In this way, by pursuing the Strong Families Act, well-intentioned policymakers aiming to expand paid leave could actually be limiting it.
Tax credits, even temporary ones, are not free.
Tax credits, even temporary ones, are not free. They are simply another form of government spending that puts just as much of a crunch on the deficit as outright government outlays do. Previous cost estimates of the Strong Families Act were approximately $2 billion in lost revenue a year with no specified revenue source. For perspective, this is similar to the estimated budgetary impact of the Trump administration’s public paid-parental-leave plan, which is estimated to cost $25 billion over ten years and $18 billion after taking growth effects into account, according to the fiscal year 2018 budget proposal. It’s hard to imagine that a conservative-controlled Congress would pass a paid-leave pilot centered around tax credits this year and then turn right around to pass a similarly sized public paid-leave program.
This is especially problematic because we know that the latter would actually expand paid-leave access — no pilot needed. The positive impacts of limited, public paid-family-leave programs for children, parents, and the economy are well documented, as a handful of states have implemented such programs over the last decade-plus. Limited paid-leave programs have been found to increase work-force participation, raise wages, reduce use of government benefits, increase leave times, and improve children’s and mothers’ health outcomes — especially for low-wage parents for whom the alternative is often welfare. The size of a limited policy can also be partially if not wholly paid for by reforms to existing spending programs. Which raises the question, Why not move forward with a program that we know works?
In an era of polarized politics, it’s heartening to see bipartisan solutions emerging in Congress. But the Strong Families Act is unlikely to move the needle on paid-leave access, while likely precluding more effective reforms. This show of political unity does little to change the on-the-ground reality for America’s working parents. Better to let tax reform pass paid leave by.
READ MORE:
Paid Family Leave Helps Working Mothers the Most
Ivanka Trump’s Mission to Establish Mandatory Paid Leave
Republicans New Tax Plan Needs Work
— Abby M. McCloskey is an economist and the founder of McCloskey Policy LLC, and she has advised numerous Republican presidential campaigns. She is a member of the AEI-Brookings Working Group on Paid Leave.
Editor’s note: This piece has been amended since its original posting.