I’m sorry. I wanted to support this idea when I first heard about it, I really did, but the more I think about it, I just can’t.
Here’s the background:
Marco Rubio, building on ideas from Kristin Shapiro, has new legislation for a family leave plan based on a clever “time-borrowing” from Social Security. According to a fact sheet on the bill, new parents would be able to take what works out to be about 2 months off work at 70% of pay, in exchange for a delay in their retirement of 3 – 6 months, “as determined by the Social Security Administration each year” (this is a change from the original proposal which suggested that 12 weeks of leave could be paid for with 6 weeks of retirement benefit deferral — math which, at the time, I noted to be suspicious; the new numbers sound more credible). The fine print on how the benefits and ultimate pay-for time-cost are calculated are not yet available since, as of this writing, only summaries are available rather than the full text of the bill.
The initial concept is one that has a lot of appeal. After all, there are plenty of retirees who spend their early retirement years hale and hearty, travelling, golfing, having a good time. It would make perfect sense to be able to trade some of that leisure time, for more time when you can truly use it, when you’re young and have babies to care for.
The proposal also sidesteps a lot of the reasons to hesitate with the other family leave plan being circulated, the “FAMILY Act” which promises 66% of pay for 12 weeks for new parents as well as anyone affected by a “serious health condition” of their own or on the part of anyone in their family, funded by 0.2%/0.2% employer/employee payroll taxes — a proposal which seems much too good to be true in terms of the generosity of the benefit level relative to the taxes collected. (When it was first proposed in 2013 it likewise seemed too good to be true.) The FAMILY Act (note that the “Y” doesn’t stand for anything) doesn’t appear to set its tax rate based on the actual cost of providing the benefit nor does it appear to have any mechanism for adjusting that cost as needed, and the “serious health condition” benefits require only a doctor’s note to begin collecting.
Rubio’s plan, on the other hand, is much more limited in its ambition, and consequently, more limited in its potential costs — depending on the particulars of the bill when it is released, it may be designed to add no additional costs at all to taxpayers, if the benefits paid out, and subsequently “paid for” in deferred Social Security benefits, are actuarially equivalent.
What’s more, for some women themselves, there may not be any real cost to the bill. In a recent article in the Hill, Andrew Biggs, of the American Enterprise Institute is cited as saying that
there was reason to think Social Security benefits wouldn’t be harmed.
A paid leave policy in California led women’s wages to rise, he said, which would ultimately boost their total contribution to Social Security, not pare it down.
If women without paid leave are, on average, more likely to quit their jobs altogether, then, for any woman for whom the provision of this form of paid leave is enough for them to stay on the job instead, their added lifetime earnings would mean that the added months of early-retirement penalty would balance out to be a wash.
But here’s the catch:
Again, I really, really like the fact that this is a serious attempt to come up with something new and leave behind old debates.
But it relies on two key ideas regarding Social Security.
In the first place, it relies on the notion that there are reliably enough “golden years” in retirement that some of them can be traded in for earlier use.
And in the second place, it relies on and reinforces the notion that we all have ownership rights to our future Social Security benefits.
With respect to the first of these, there are a great many retirees for whom this trade-off would work out perfectly well. But no individual mother (or father) can forecast reliably whether she’ll be struggling with unemployment or ill health or the need to care for a sick spouse or parent in ways that make delaying retirement difficult or impossible, and I don’t really know how to get around this. It’s a risk, a gamble, and, well, you know about actuaries and risk.
With respect to the second of these, here’s Marco Rubio on twitter:
I don’t want to fund #PaidFamilyLeave with #SocialSecurity. I want working American parents to have the OPTION of funding THEIR paid leave by drawing early on a portion of THEIR social security benefits which THEY paid for with THEIR taxes.
It makes me want to bang my head against the wall to see not even a Democratic but a Republican politician perpetuate the notion that Social Security benefits are owned and paid for by workers as they pay their taxes. The Rubio proposal is essentially a matter of borrowing defined amounts of money using future Social Security benefits as collateral, which is fine conceptually, but dangerous when it makes it far more difficult to reform those benefits in the future, when it reinforces the idea that people have a moral and legal right to exactly the benefit formula now in place. To give just one example, if a couple with three children ends up with full retirement age delayed from 67 to 68 1/2, how much room would there be for further increasing the age, say to 69, 70 or even later?
Now, that being said, I wish I could offer an alternate, better plan, because I do hate it when others carp about a proposal without an alternative. The best I can do is my usual: readers, what do you think?