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Friday, September 14, 2018

If the Left Wants Big Entitlements, Believe Them!

On September 4 in the Wall Street Journal (print edition), Hoover Institution senior fellow John Cogan laid out a good argument against Senator Marco Rubio’s plan for a paid family leave program. Cogan put Rubio’s plan in a historic context, rightly concluding that a tax-paid family leave system would grow big, the same way other entitlement programs have.

There is more evidence to support Cogan’s conclusion, especially from Europe. Paid-leave proponents on the left often imply that the United States is less evolved than Europe because we do not have tax-paid family leave. If Europe is the role model, we should also consider the possibility that paid-leave proponents will eventually expand a U.S. paid-leave program to European proportions.

Marco Rubio’s proposal would grant parents eight weeks of leave, paid for with their future Social Security benefits. This is very modest by European comparison. According to the OECD, parents in the European Union get an average of 22 weeks of so-called maternity leave with a newborn. Some countries offer much more: in Bulgaria, parents get 58 weeks while Greek families can take 43 weeks. Britain, the Czech Republic, Croatia, Ireland and Slovakia all offer at least 26 weeks.

But that is not all. In addition to maternity leave, most EU member states also offer something called “paid parental and home care leave”. In combination, the two programs allow the average parent in the EU more than 65 weeks of paid parental leave.

A total of 16 European countries offer more than a year’s total leave (including Norway, which is not a member of the EU). Six countries, Bulgaria, the Czech Republic, Estonia, Finland, Hungary and Slovakia, let parents take at least 100 weeks of paid leave.

If we are to follow the European example, reasonably we should expect that over time, Senator Rubio’s paid-leave program would grow exponentially in how many weeks it offers.

Then there is the compensation side of the program. Rubio’s idea would pay out premature Social Security benefits large enough for a family earning $70,000 to get 70 percent of their income covered. With a higher income-coverage rate for lower incomes, the plan would allow lower-wage parents to take either a higher income replacement rate or stretch the benefits out over a longer period of time.

The 70-percent replacement rate is low by European comparison. In 21 countries, parents get more than 70 percent of their income. In eleven countries the replacement rate is 100 percent.

Just like with the number of weeks covered, there is nothing that prevents Congress from raising the income replacement rate over time. This is worrisome, especially since his reform is supposed to be funded by the forfeiture of future Social Security benefits. But even if we disregard future expansion of the program, there is considerable uncertainty as to its cost.

What is clear is that the reform is not budget neutral. The program drains Social Security for money long before any beneficiary can pay the system back by giving up retirement benefits. If the program is created in 2020 and the average parent is 30, it will take 35 years before they reach retirement. In the meantime, tens of millions of parents will draw paid-leave benefits, creating a net cost on a Social Security system that is already heading for de facto bankruptcy.

With this in mind, the European comparison should raise a red flag for Rubio’s reform model. Once Democratic paid-leave proponents can use a Congressional majority to expand the program, its costs will rise very quickly. It would be fair of proponents of Rubio’s reform to explain either how they will prevent a cost runaway, or how much faster Social Security will run dry if Congress let paid leave grow to Canadian proportions (52 weeks) or to the EU average 65 weeks).

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