How to Structure a Paid Family Leave Plan

Marco Rubio released his paid family leave plan. Here it is:

Rubio’s proposal consists of a 25 percent non-refundable tax credit for employers who offer their employees between four and 12 weeks of paid family leave to new parents, those caring for sick family members, and the families of members of the military. Pay would be capped at $4,000 per employee per year, but it would apply to “all employee arrangements,” his plan says, including those working part time.

In analyzing the potential effects of any give paid leave policy, it's helpful to separate out those who already receive paid leave from those who do not.
 
Those Who Already Receive Paid Leave
 
For those who already receive paid leave from their bosses, this sort of tax credit obviously does not make paid leave available to them: they already have it. These are your so-called "inframarginal" leave-takers.
 
For these employees, all the tax credit does is give their employer an extra bit of money when they take leave. In theory, this extra bit of money is up for grabs and could find itself going either to the employee (e.g. through higher paid leave benefits) or the employer (as a pocketed subsidy). It's hard to know in advance what exactly the incidence will be.
 
Assuming the primary goal of paid leave subsidies is to increase the availability of paid leave, the effect of the tax credit on these inframarginal leave-takers is not important.
 
Those Who Don't Already Receive Paid Leave
 
The more significant question is what effect the tax credit will have on those who don't already receive paid leave. As far as I can tell, there have been no experiments on this question, but it's hard to imagine it having much of an effect at all.
 
When an employer decides whether to provide paid leave, it likely makes some diverse and complicated considerations. Will providing paid leave make people more likely to take it and stay out longer (presumably seen as a bad thing from the employer's perspective)? Will providing paychecks to employees while they are on leave be too costly? Who in the company will administer such a system and will the necessary internal benefit bureaucracy be too expensive?
 
Right now, employers that have decided against paid leave have presumably determined that the associated costs of lost work time, coordinating the benefit bureaucracy, and actually making the leave payments are not worth gains they could get from offering paid leave to employees.
 
It's hard to see how a 25% tax credit tips the scales enough to nudge a significant number of employers into providing the benefits. If the only thing standing in an employer's way is that they can't justify 25% of the paid leave payroll costs, then why aren't they already offering paid leave at 75% of the normal pay? Discounting the leave pay amounts by 25% is something employers can already do.
 
If the tax credit were a flat dollar amount (and refundable), it would be easier to see how it could push employers at the margin to provide leave. If one simply paid employers $1000 every time one of their employees took paid leave, then you can see quite easily how that might translate into them putting such a program in place. Employers would want to get that $1000. This may not be a good idea for some reasons, but the story for how it would work is far more plausible than the story for how Rubio's tax credit would work.
 
A Better Way
 
This approach to paid leave is a bad idea. Pushing welfare benefits through the employer has not worked out well, and for paid leave the prospects of success are even weaker than usual. More than likely, the gains of any such tax credit would overwhelmingly flow to people who already have paid leave (who tend to be more well-off) and little would make its way to those who currently lack paid leave (who tend to be less well off).
 
A better way to expand paid leave is simply to increase the tax level slightly and have the Social Security Administration pay the benefits. This ensures everyone receives paid leave and frees employers from having to administer a paid leave program. In broad strokes, this is what the FAMILY Act does, which has the basic idea of how best to go about paid leave right.
 

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