To win the federal paid family leave debate, allow states to lead the way

In mid-August, Oregon Gov. Kate Brown signed the state’s Paid Family and Medical Leave Act into law, making it the eighth state in addition to Washington, D.C., to have statewide paid family leave laws. Within the last 12 months, Massachusetts and Connecticut enacted paid family leave rules, and two dozen states are considering similar proposals.

While paid family leave is quietly gaining ground in state legislatures, federal policy and debate related to the issue has been noisy and disjointed. For now, we should allow states to lead the way on this issue.  

As the country heads toward November 2020, paid family leave policy probably has drawn more attention in recent months than it ever has. President Trump, senior adviser Ivanka Trump, legislators and many current and former presidential candidates from both parties have expressed support on this issue. But there are major ideological differences among their proposed policies.

Democrats’ signature solution, the Family and Medical Insurance Leave (FAMILY) Act, has been introduced by former presidential candidate Sen. Kirsten Gillibrand (D-N.Y.) in every session of Congress since 2013. The FAMILY Act establishes a new federal paid family leave system that covers up to 12 weeks of paid leave at approximately two-thirds of wages for new parents and family members. It finances the benefits with additional payroll tax deductions, similar to the state models. This proposal has the most comprehensive coverage; however, it is also the costliest.

Republicans’ hallmark approaches center on the idea of letting new parents advance their Social Security benefits for up to 12 weeks; in exchange, working parents would have to delay collecting Social Security retirement benefits by about 24 weeks to offset the costs. The proposals include the Economic Security for New Parents Act sponsored by Sens. Marco Rubio (R-Fla.) and Mitt Romney (R-Utah), and the Child Rearing and Development Leave Empowerment (CRADLE) Act sponsored by Sens. Joni Ernst (R-Iowa) and Mike Lee (R-Utah). These proposals boast their budget-neutrality. But the coverage is limited to new parents, not workers’ or family members’ medical needs.

These proposals reflect political preferences of each party’s voters. On one side of the spectrum, Republican-leaning voters generally dislike adding taxes to fund extra government programs, which is costly to administer. On the opposite side, Democratic-inclined voters argue that the coverage from Republican proposals is inadequate; they also object to allowing early withdrawals from Social Security, a program already in a precarious financial position.

Despite the best intentions from both parties, the federal solutions to paid family leave have become increasingly partisan. Two bipartisan proposals in Congress reflect different thinking amid the stalemate. 

First the 2017 Tax Cuts and Jobs Act (TCJA) includes a two-year pilot provision that offers federal tax credits of up to 25 percent to employers that provide paid family leave for 12 weeks per year, expiring in  2019. The program has a unique aspect: It targets low- to middle-income workers, as employers are only eligible for the tax credit if they provide benefits to employees with wages lower than $72,000. However, the short duration of the credit does not provide enough time to investigate the program’s results and limitations, including the employer take-up rates, whether this enables establishment of new programs or simply benefits existing programs and employers that are “on the fence” of providing benefits.

The proposed Paid Family Leave Pilot Extension Act would extend the credit for another three years, require the Government Accountability Office to prepare a study to evaluate the program’s effectiveness and recommend viable policy alternatives. Although this proposal provides a good opportunity for lawmakers to engage in meaningful policy discussion with robust empirical data, it does kick the can down the road for three years and run the risk of losing momentum.

Second, a separate bipartisan proposal endorsed by Sens. Bill Cassidy (R-La.) and Kyrsten Sinema (D-Ariz.) allows new parents to take up to $5,000 of Child Tax Credit (CTC) upfront; the advanced amount would be allocated to reduce their CTC by $500 per year over 10 years. From a financial perspective, this proposal does not expand the CTC; instead, it is analogous to the government providing an interest-free loan to the families. Because the TCJA substantially increased the income phase-out thresholds for CTC, more taxpayers would benefit from the plan.

This proposal is appealing to Republican-leaning voters because it does not raise taxes; it is attractive to Democratic-inclined voters because it does not involve Social Security. But it has drawbacks.

First, this plan does not exclusively mandate paid leaves. Instead, it changes the timing of CTC that allows families to “finance time off work” and “afford quality infant care.” To a certain extent, it complements the existing Family and Medical Leave Act (FMLA), which mandates 12 weeks of unpaid leave. A major criticism of FMLA is that many workers cannot afford to go without pay for an extended period. This proposal would indirectly fund the FMLA by providing financial resources through advancement of CTC so parents can buy their time away from work.

The issue is that FMLA covers only about 60 percent of U.S. workers. Therefore, whether non-FMLA-eligible workers would have the opportunity to finance their leave under this proposal is questionable. In addition, similar to other tax credits, parents would not be able to access the funds until they file their tax returns. For a child born in May, parents would not be able to get the money until February of the following year unless they go through the trouble of filing an amended return. 

A national paid family leave law is no doubt the end goal for both parties; however, the federal policy discussion is gradually departing from mandating employers or federal agencies to establish a paid leave program. Instead, it focuses on providing financial resources to workers, which provides, at best, indirect support to the most vulnerable workers primarily because of limited FMLA coverage, accessibility and timing issues.

In the coming years, the most promising developments that truly provide workers and their families with guaranteed paid leave will still be at the state level. Federal lawmakers should focus more on the programs that directly provide paid family leave instead of only the financial incentives.

Joyce Beebe is an economist and fellow in public finance at Rice University’s Baker Institute for Public Policy.