The Corner

Politics & Policy

The Paid-Leave Plan Grows the Scope of Government

(Larryhw/Dreamstime)

The whole tariff detour our country is taking has delayed my conversation with Ramesh about paid leave. His most recent response is here. I have a couple of points to make.

Ramesh is incorrect to claim that switching from the current Social Security system to personal accounts requires a “short-term increase in spending.” Switching from traditional Social Security accounts to personal accounts doesn’t increase spending in the short term at all. Instead, it allows workers to contribute money to personal accounts in lieu of payroll taxes. That loss of tax revenue will be made up with reductions in spending as we transition away from unfunded accounts into the new system. As AEI’s Andrew Biggs asked in a recent Twitter exchange, I should be explicit about the fact that what I called “switching to personal accounts” also involves other changes in addition to the cuts to traditional benefits that I mentioned, such as increasing the retirement age and changes to the cost-of-living adjustment (COLA), to get the program to balance in the long run. It seemed obvious to me that the reform needed to be comprehensive, but I am happy to add this point.

No one claims that personal accounts are perfect, as I noted here. It is not a perfect free-market solution, as the government is still involved and could jack up its involvement in the future. And, certainly, the math problem that previous reform plans were able to solve may be harder to resolve now that we have waited so long. Biggs and I agree that, back in 2005, if done properly and comprehensively, such an approach would have resulted in a reduction in the size and scope of government.

The same can’t be said of the paid-leave plan supported by Ramesh and others. Even if we pretend that it doesn’t change the size of government because the increased spending in the beginning will perfectly offset a few decades later with delayed benefit payments and increases in revenue (i.e., parents delay retirement and hence continue to send taxes to Uncle Sam), the plan increases the scope of the government immediately. You can’t wish away the fact that it drags the government into an area where it played no role before. Indeed, you don’t even have to admit that the probability is extremely high that politicians and various interest groups will later expand the program to recognize that point.

It certainly doesn’t help that the long-term balance of the program is unrealistic. And it doesn’t help that there are real technical issues that come from using the Social Security Administration to achieve this paid-leave goal. For instance, this plan is a poor fit for SSA, as it is intended to be a pay-in system, whereas parental leave is taken before parents have had the time to pay into it. Do advocates of the plan want to change this feature of SSA? Also, what happens if someone uses the paid-leave benefit and then decides to stay home to raise the children or becomes disabled? Who will work longer to pay for the benefits that are used? Then there is the small problem of the looming insolvency of Social Security.

But I digress. Let’s not forget what started this conversation in the first place. Originally, Ramesh claimed that the similarities between personal accounts and this paid-leave plan should put libertarians at ease. I weighed in to note that it is not the case. We can argue about the pros and cons of personal accounts for hours, but when all is said and done, even under balanced-on-paper circumstances, this plan grows the scope of government from our current position.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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