The majority of workers do not have access to a single paid day off upon the birth or adoption of a child, according to the Council of Economic Advisers. Numerous proposals on the right and the left have been put forward to close the paid leave gap — one of the most recent being a proposal for universal leave accounts (ULA).
In their Hill op-ed, “A modern leave policy both employers, employees could love,” Frayda Levin, Christina Sanderfur, and Carrie Lukas of the right-leaning Independent Women’s Forum present the concept of a ULA, wherein workers could save pre-tax earnings to use for periods of leave in the same way that workers may save for healthcare or retirement. They correctly argue that “no government program could match the flexibility of a ULA,” though flexibility while desirable should not be the final test of any program. And they say that in a modern economy, workers with many varying needs should be treated “as individuals not drones.” I agree. Drones don’t need paid parental leave, but many parents do. Sadly, a ULA is unlikely to help those parents who need it most.
To be sure, tax-advantaged savings accounts are extremely beneficial for many families and an important component of financial preparedness. It makes sense that people should be able to save on their own for major life events with a large amount of flexibility and reduced government burden. Along these lines, I have previously proposed relaxing HSA rules to allow for more general expenditures during pregnancy and maternity leave.
{mosads}But ULAs cannot be the primary solution for paid parental leave for many reasons: First, tax-advantaged savings accounts are widely underutilized and skewed to the well-off. Only a third of workers save for retirement in 401(k)s, according to Census data, and an even smaller percentage invest in HSAs. One reason is that these accounts are designed to benefit those with a federal income tax liability. Such a policy offers little to low-and-middle wage workers, who tend to be the ones with the least access to paid leave from their employers.
Additionally, low-wage workers tend to have less disposable income to set aside for weeks without pay, even if the tax shield were applicable say to payroll taxes. Some have proposed that charities or employers could seed the accounts of low-wage workers. But this is not widespread practice today and it’s hard to see how existing incentives would change with this proposal.
Second, childbirth occurs early in one’s working life — on average, around age 26 (and for some, much earlier). This is when savings have yet to accumulate and when many young people are also juggling student debt. This makes saving for parental leave a much harder endeavor than saving for retirement, when the principle of compounding interest can take effect and multiply savings over decades.
Third, even if a young person has an income-tax liability to reduce and savings to invest, the current system of tax-advantaged accounts is hardly user-friendly. Major life expenses — such as illness, childbirth, educational expenses, and retirement — are often unpredictable, making it difficult to know how to divvy up limited savings across a wide variety of tax-advantaged accounts, each with their own strict withdrawal restrictions. If anything, there should be an effort to combine or relax the requirements around existing savings accounts, instead of creating one ones.
This says nothing of the issue of job protection. Even if financial support exists for periods without leave, it’s unclear if an employer would hold open a job. Approximately 40 percent of workers are uncovered by the Family and Medical Leave Act, which mandates that employers provide job-protected leave for family and medical issues. This is particularly an issue for low-skilled workers whose jobs are more easily replaceable.
For these reasons, I support a limited public paid parental leave program, such as that proposed by the Trump administration or the AEI-Brookings Joint Paid Leave Working Group, which I was part of. Such a program largely would function as a safety net for parents without access to paid leave from their employers. It would provide relatively larger benefits to low-income families — who tend to have the least access to employer benefits and have seen the largest gains in wages, employment, and health outcomes from existing state-based paid leave programs.
And it would be paid for at least in part by reduced government spending elsewhere. Indeed, it is highly possible that such a proposal would actually less costly than a tax-advantaged savings account, the existing system of which costs the government hundreds of billions annually in lost revenue.
Some employees and employers certainly would benefit from ULA or some other type of tax-advantaged savings reform. But many more parents are likely would be left out, especially those who need assistance the most. That’s hard to love.
Abby M. McCloskey (McCloskey Policy LLC) is an economist and a member of the AEI-Brookings Joint Working Group on Paid Leave. McCloskey was policy director for Gov. Rick Perry’s 2016 presidential campaign and an economic adviser for Gov. Jeb Bush’s 2016 presidential campaign.