The Corner

Economy & Business

Democrats’ Paid-Leave Plan Is Underfunded

The FAMILY Act is a Democratic bill to provide paid leave to new parents (and others). It would guarantee twelve weeks of leave for those who have babies, and it would collect a 0.4 percent payroll tax to fund the benefit.

A new report from the CBO, however, says the payroll tax doesn’t actually cover the cost:

CBO estimates that enacting the bill would increase direct spending by $547 billion over the 2020-2030 period — $521 billion for benefits and $27 billion for program administration (see Table 1). JCT estimates that enacting the payroll tax would increase net federal revenues by $319 billion over the 2020-2030 period. (The new payroll tax would raise a total of $361 billion over the period, but that amount would be offset by a reduction of $42 billion in income tax revenues.) In total, we estimate that the bill would increase the deficit by $228 billion over the 2020-2030 period.

In other words, the bill is only 58 percent funded. Some very rough back-of-the-envelope math suggests the annual cost amounts to about $350 per worker in the U.S., while the tax would collect more like $200 per worker per year.

The true cost matters a lot, because polling from the Cato Institute shows that Americans’ support for paid leave changes a lot depending on what they’re asked to give up and whether the benefit increases the deficit:

The survey found 54 percent of Americans would be willing to pay $200 a year in higher taxes, a low‐​end estimate for a 12‐​week federal paid leave program. However, majorities of Americans would oppose establishing a federal paid leave program if it cost them $450 a year in higher taxes (52 percent opposed) or $1,200 a year in higher taxes (56 percent opposed), the mid‐​range and high‐​range cost estimates respectively. . . . Americans also oppose (57 percent) borrowing money to pay for a federal paid leave program.

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