Fiscal Policy

How COVID-19 Could Clear a Bipartisan Path Forward on Paid Family Leave

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Presidents of both parties have explored providing paid leave through unemployment-insurance systems. The coronavirus pandemic could finally make it possible.

No matter how you look at it, COVID-19 has been terrible for America. But its aftermath may help clear a path forward for paid leave.

The coronavirus pandemic has highlighted the inefficacies of existing state-run unemployment-insurance (UI) systems. Such systems have been overwhelmed by applications, resulting in significant backlogs, delays, and random variability in who actually gets paid. To take just one example, during the current downturn, 65.9 percent of unemployed Massachusetts residents received benefit payments in March 2020, but only 7.6 of their Floridian counterparts did, according to Pew Research.

Members of both parties recognize the need to reform UI to increase its flexibility (through measures such as work-share programs that mitigate long-term unemployment, which have been advocated by AEI’s Glenn Hubbard and Michael Strain), reduce fraud, and streamline access to benefits, which tend to accrue to white workers more so than to minorities. A reform package is likely to be debated sooner rather than later, given the expiration of emergency UI benefits passed by Congress earlier this year and the potential for a resurgence in the virus coinciding with flu season. Such a package could pave the way for UI to serve as the administrative vehicle for paid leave.

In many ways, UI is naturally suited to play that role. It is designed to deliver temporary benefits to those out of work for short periods who have an expectation of re-employment, just as paid family leave delivers temporary benefits to new parents who expect to eventually return to work. The hybrid federal–state model of UI allows for considerable state flexibility in determining benefit levels, instead of a one-size-fits-all federal approach. This makes it an especially appealing match for paid leave, given that benefit and taxation levels vary widely across the patchwork of existing state paid-leave programs. (By comparison, benefits that flow through the Social Security Administration such as disability insurance and old-age payments are delivered over the long-term without an expectation of returning to work and thus the administration for paid leave is less comparable, at least in this regard.)

What’s more, it is an increasingly rare thing: an idea with bipartisan backing. Alongside Adrienne Schweer and Ben Gitis, I helped lead a Bipartisan Policy Center – Morning Consult poll of recently unemployed persons — those arguably most familiar with how UI works — that was published in July. Our poll asked respondents if they would support or oppose changing their state’s unemployment-insurance system to also include short-term benefits such as paid parental leave. The vast majority of them, across party and gender lines, said that they would. Presidents of both parties have also championed the idea. President Clinton was the first major proponent of “Baby UI.” In 2000, the Department of Labor issued the Birth and Adoption Unemployment Compensation (BAA-UC) regulation, which allowed states to set up programs for mothers and fathers to collect up to twelve weeks of UI benefits upon the birth or adoption of a child. The regulation provided states no federal help in paying for these benefits and their participation was voluntary, so while several of them explored the option, none implemented it. The plan fell out of favor during President George W. Bush’s first term due to the recession and concerns about burdening employers and discriminating against female workers. But in his 2016 campaign and resulting White House budgets, Trump revived it, proposing a six-week paid-maternity-leave plan — he eventually expanded the proposal to cover new fathers as well — administered through state UI systems. His proposal put the full funding burden on states, much as Clinton’s plan had, which resulted in state-level pushback.

Though none of these plans has been implemented, we still have an idea of how they might work in practice. The clearest recent example comes from the COVID-relief packages passed by Congress this spring and summer, which gave states federal funding to supplement their UI benefits with an additional $600 per week for unemployed residents. A UI–paid-leave program could work the same way, with the federal government providing the funding for states to offer new parents a baseline level of benefits, so as not to burden state budgets. The Disaster Unemployment Insurance program, which “provides federally funded unemployment benefits to individuals unable to work as a result of a federally declared major disaster and otherwise ineligible for regular UC benefits,” is also a useful analog, as a federal benefit that runs largely independent of and parallel to state systems.

To be sure, delivering paid parental leave through UI programs would come with its fair share of challenges, which is why paid-leave advocates have tended to focus more on the Social Security Administration or existing tax credits as potential delivery vehicles. In addition to the fact that existing UI programs function poorly and thus would require reform prior to any type of paid-leave expansion, UI benefits are largely paid for by a payroll tax on employers, whose level of taxation is adjusted (“experience rated”) based on how many of their employees claim benefits. If experience rating were extended to paid leave, it could result in employers’ discriminating against the hiring of women of child-bearing age. UI-eligibility rules also vary significantly by state, which could create issues with the consistency of the paid-leave benefits offered to new parents across different states.

Still more potential roadblocks loom. UI does not address job protection, and 40 percent of workers aren’t covered by the Family and Medical Leave Act’s (FMLA) job protections, meaning that even if paid leave was available, a significant portion of workers would fear losing their jobs by taking it. It’s not clear how a national UI–paid-leave program would interact with existing state programs or employer programs, which have largely been formed on the basis of state temporary-disability-insurance programs, and one would want to minimize crowd-out of these existing private options. While it is relatively simple to verify eligibility and administer paid-leave benefits, expanding the range of benefits to include, say, medical leave could present administrative difficulties for states and increase the risk of fraud. But the idea of keeping family leave and medical leave separate as conservatives have consistently advocated is a non-starter for many liberals.

While each of these concerns deserves more attention, there are ways to mitigate at least some of them. For example, the federal government could mandate that states offer a minimum level of paid parental leave and provide separate funding to do so that does not affect state budgets or an employer’s experience rating. The program could provide job protection to a broader swath of workers than the FMLA for a shorter period of time — say eight weeks — thus reducing the burden imposed on small business. And the federal government could provide basic eligibility guidelines to ensure broad participation. A flat payment of $600 a week would reduce administrative overhead while functioning as a progressive benefit, meaning that it would represent a larger share of income replacement for a low-wage worker than for a high-wage worker.

All of these challenges, of course, pale in comparison to the the elephant in the room: funding. Irrespective of the administrative mechanism, there remain significant questions about how to pay for any paid-leave program. Some have argued for funding the idea through higher payroll taxes, repurposed government spending, or more-progressive income taxes. Most conservative proposals up to this point have been budget-neutral, relying on the re-timing of existing benefits. Senators Marco Rubio (R., Fla.), Mitt Romney (R., Utah), Mike Lee (R., Utah), and Joni Ernst (R., Iowa) have proposed giving new parents the option to take a portion of their Social Security benefits early in exchange for delaying their receipt of the same benefits at retirement. Senators Bill Cassidy (R., Louisiana) and Kyrsten Sinema (D., Ariz.) have proposed offering new parents an advance on their Child Tax Credit (CTC) payments in exchange for a corresponding decrease in the CTC payments they receive as their child gets older. But one need not make a calculated choice about retirement timing or CTC assistance to access, say, food stamps or unemployment benefits, and it’s unclear why a paid-family-leave program should work differently. Progressives, meanwhile, have relied exclusively on increasing payroll taxes to fund their wider-reaching paid-leave proposals, which would be an untenable additional burden on working families during this economic downturn.

A modest UI–paid-parental-leave program costing between $5 billion and $10 billion per year — less than 1 percent of annual federal entitlement spending — could solve the problem. It could easily be paid for out of repurposed general spending, eliminating the need for tax increases, while delivering support to vulnerable new parents without strings attached that might unnecessarily discourage its use. The Tax Foundation estimates that the doubling of the estate-and-gift tax exemption included in the Tax Cuts and Jobs Act of 2017 will cost $72 billion from 2018–2027. The mortgageinterest deduction, 90 percent of the beneficiaries of which are households earning more than $100,000 a year, is expected to cost $597 billion from 2019–2028. Either total would be more than enough to cover a parental-leave program.

A national paid-parental-leave program would accomplish a host of good for the nation. It would also satisfy long-standing conservative priorities such as strengthening the family (paid leave increases the time parents spend with their children), protecting life both inside and outside the womb, and increasing economic opportunity for all Americans.

One of the most exciting developments of the last four years has been the growing consensus among politicians and the public that it’s time for the U.S. to have a paid-parental-leave policy. There are many forms such a policy could take, and many different proposals have been advanced. By making UI reform a matter of great urgency, the coronavirus pandemic could potentially add another option with bipartisan roots into the mix.

Abby M. McCloskey is an economist, is founder of McCloskey Policy LLC, and has advised numerous presidential campaigns. She is a member of the AEI-Brookings Working Group on Paid Leave.