On February 13, the Washington Times reported:
Director of National Intelligence Dan Coats warned Tuesday that the national debt has become a danger to national security
See, I told you so. If Congress does not get its budget deficit under control, they will destabilize our economy and jeopardize their own ability to fund the military.
Director Coats is not the only one raising a red flag. There are all sorts of alarm bells going off about the federal debt. Yet on Capitol Hill, it is spending as usual – and there is more to come. In the near future, Senator Rubio (R-Fla.) will be the lead sponsor of a paid family leave bill that could add hundreds of billions of dollars in new annual spending.
Hopefully, Congress will eventually come to its senses before we are hurled into a Greek-style deficit crisis, a possibility it would be foolish to dismiss. When the Congressional majority does come around, there is plenty they could do, and do quickly, to change the direction of federal spending.
A good place to start is actually paid family leave. A reform here would not do much to shrink the size of government, but it would prevent further increases and, more importantly, change the terms of the public discourse. Instead of knee-jerking into a government-provided solution, the right kind of reform would let Republicans carve out a path back to free-market solutions and limited government.
A good paid-leave reform would start with two questions:
a) What could Congress do to help America’s families pay for their own time away from work without growing the size of the federal budget?
b) Why are many Americans unable to afford to save up for life events such as staying home with a newborn?
The second question has many answers: slow economic growth has slowed down the rise in personal income; the cost of housing in big urban areas is too high; college graduates have piles of student loan debt to pay back. Not to mention the distrust in Social Security that many young voters have, motivating them to save for their retirement rather than their near-term family needs.
In other words, life has become expensive in modern America. The problem is that it takes time to do something about these big, structural aspects of the economy. On the upside, there is one reform that would overcome the restrictions of strained personal finances while also giving a limited-government answer to the first question .
Congress could, simply, allow families to set aside a portion of their pre-tax income into a designated account without paying taxes on the deposited money. The money that an individual deposits would be the money that he or she withdraws; there would be no pooling of the money, and no pay-as-you-go model involved.
In theory, a family could access the money in the family savings account for any reason they see fit. In practice, to incentivize prudence and financial planning, Congress could attach strings to the account. After all, Congress would have some say in the definition of the account, since people can defer income-tax payments until they make withdrawals. The conditions attached to the family savings account could be the same as the terms guiding a person’s leave under the Family and Medical Leave Act.
There are two advantages with this model, compared to a government-run system. First, individual citizens have direct control over their own money. In government-run programs, people give up their own money today for an IOU tomorrow. Secondly, families have a great deal of flexibility. Some will choose a frugal lifestyle today, save a lot and be able to stay home for a long time with their kids. Others will prefer to wait with children and minimize their savings today.
The only substantial downside of this reform is that it deprives the federal government of some upfront tax revenue. This is inevitable, but preferable to a model where government spends more.
With a reform that benefits America’s families, the debate over the line between government and the private citizen will hopefully change for the better. This reform, while no universal solution, would help turn around the conversation about government’s role in people’s lives. In other words, in addition to improving the lives of millions of young families, it could inspire a paradigmatic shift where the main course of action is to ask what we all can do to shrink government, instead of continuing to expand it.