Do you want to have children or a secure retirement? That’s the question that was posed in a Senate Finance Committee hearing on July 11, where Senator Joni Ernst (R-IA) presented a proposal she is working on with Marco Rubio (R-FL) and Mike Lee (R-UT) that would allow parents to use their Social Security funds to finance their work leave after having a child.
The reality is that for families with children, saving money is already a huge challenge, as raising children costs a lot. The latest statistic from the United States Department of Agriculture, which tracks this data, is that for a two-parent, two-child, middle-income family, child rearing will cost upwards of $230,000 for a child through age 17 (and that’s before college). Families facing medical issues have additional financial challenges—given that dealing with health challenges not only leads to hospital bills but also needing to take time away from earning a paycheck—whether you are the patient or the caregiver. Not surprisingly, medical expenses, reduced income, and job loss are the top three causes of bankruptcy in the United States. Parenting, caregiving, and health challenges already set the stage for a more challenging financial situation both pre-retirement and during retirement.
Parenting, caregiving, and health challenges already set the stage for a more challenging financial situation both pre-retirement and during retirement.
Senator Kirsten Gillibrand (D-NY) and Representative Rosa DeLauro (D-CT) have offered one solution to this challenge in the form of the FAMILY Act (S. 337/H.R. 947) that helps set families up for financial stability. As discussed in the Century Foundation report “Tech Companies Are Leading the Way on Paid Family Leave,” the FAMILY Act would create a national paid family and medical leave program to provide individuals with twelve weeks of partial income when they take time off for Family and Medical Leave Act (FMLA) purposes, such as caring for a new baby or newly adopted child, caring for a seriously ill relative, or one’s own serious illness. The bill ensures that no one need risk losing a much-needed paycheck by taking time to care for family or themselves. While the bill is not perfect—medical professionals advocate longer than twelve weeks of leave to care for newborns especially—it is universal and inclusive, and will help people navigating their work and care needs meet their expenses both today and in the future.
As Gillibrand testified last Wednesday, “At some point, every single person in this room is going to have to care for a family member or themselves. And no working American should ever have to choose between their families and their paycheck. Unfortunately, this is a choice millions of Americans have to deal with every time there is an emergency. 85 percent of Americans don’t have access to paid leave.” She spoke to her fellow lawmakers, explaining the importance of extending this leave beyond parents and babies to entire families, stating: “Everyone here, if a spouse was seriously ill, would want to be by their side. We have that option—most Americans don’t.”
The New York senator stressed that the FAMILY Act, unlike the proposed Republican plan, achieves this while also keeping retirement secure. She continued, “It’s portable, it works for the gig economy, it works for everyone, because it’s an earned benefit just like social security. It has been endorsed by Fortune 500 companies because it’s good for businesses and it’s good for this country.”
The bill has the support of thirty-two senators, 155 representatives, and more than 290 organizations representing millions of members. The sponsors have been introducing it during each Congress since 2013, and the momentum for it has been growing.
In 1993, when the FMLA was signed into law by President Clinton—giving millions of Americans the right to twelve weeks of unpaid, job guaranteed time to care—it had previously been twice vetoed President H. W. Bush. Twenty-three years later, the 2016 presidential race was the first time both a Democrat and Republican candidate acknowledged the importance of paid family leave, and made the issue a priority.
That the issue has become more bipartisan over time is a sign of growing public support for addressing the challenges millions face of managing caregiving together with earning a living. In 2016, a bipartisan team of pollsters, Lake Research Partners and the Tarrance Group, commissioned by the National Partnership for Women & Families, found that more than three-quarters (78 percent) of voters say they would favor establishing a national law that offers all workers twelve weeks of paid family and medical leave for workers caring for a new child or seriously ill loved one or dealing with their own serious health condition—and that support for the proposal extended across party lines.
How to Best Tackle Paid Leave?
With the United States the only industrialized nation in the world that does not supply some form of maternity leave, all lawmakers in attendance at the July 11 hearing repeatedly stressed their appreciation for bipartisan support and attention to the issue of paid leave. That there is a commitment from both parties on this issue is certainly a step forward. But the parties have different approaches to providing paid leave to their constituents—and the GOP’s proposal poses serious risks for Americans. This section addresses the critical points of contention between the two proposals in Congress.
Who Should Be Covered?
Proposals like the FAMILY Act, and the paid leave bills that have passed in fives states and the District of Columbia, include parents and other caregivers who need paid time to care for their loved ones with serious illnesses. The proposal by the Independent Women’s Forum being considered by Republicans in Congress would only cover parents. This is despite the vast public support for paid leave covering serious health conditions and the fact that 57 percent of FMLA leaves are for one’s own serious illnesses and 19 percent are caring for an ill loved one. A full quarter of family caregivers are millennials—and with a vastly aging population as the baby boomers reach retirement, the need to take care of elderly family members will only grow. In addition, covering a multitude of caregiving needs creates a more equitable program where parents and non-parents can both benefit.
Financing Paid Leave and Social Security Benefits
Proposals like the FAMILY Act also include a guarantee of paid leave with no retaliation for all eligible individuals who have a covered care need, which it would accomplish by adding a small .02 percent payroll tax on both employers and employees to create a shared social insurance net. As noted above, caring for children, family members with serious illnesses, and one’s own serious illness are already a financial drain in the here and now. The new Republican proposal would add to this burden by forcing parents to choose between financial security now or retirement security later. This proposal would redirect Social Security retirement benefits for paid leave without new funding for those who choose to make the trade-off. Parents should not be made to choose between the two.
Caring for children, family members with serious illnesses, and one’s own serious illness are already a financial drain in the here and now. The new Republican proposal would add to this burden by forcing parents to choose between financial security now or retirement security later.
The Exacerbation of Wealth Gaps
Ernst’s proposal—which is still being drafted into a bill—could widen the gender wealth gap as well as overall inequality. Women typically already have lower Social Security retirement benefits than men—in 2015, the average benefit for women was $14,184 as opposed to $18,000 for men. This disparity is due to the time many mothers take off from their careers to raise children—a decision that is less of a choice than a necessity for many families due to the high price of child care and perpetuated trends that expect mothers to be the ones that sacrifice their careers for child care duties. The gender pay gap also contributes on multiple fronts: as women often still earn less than men in similar positions, the corresponding percentage of their income comprising their Social Security benefits are lower; this economic inequity compounds with the social inequities mentioned above to create even more pressure on women.
Implications for Low-Income Americans
The GOP proposal is also a particularly high-stakes one for low-income Americans. Some people are able to supplement their Social Security earnings with retirement savings accounts like 401ks provided through their employers. But in 2017, just 5 percent of the lowest 10 percent of wage earners had access to financial planning benefits of this type. People who work for smaller companies and in certain industries like construction, hospitality, and administrative and waste services are less likely to have access to financial planning services including retirement plans.
The proposal would hit younger generations hard, as well. Millennials saddled with student loan debt in jobs that barely pay their rent often do not have the money to contribute to a 401k even if their employer provides it, making their Social Security benefits all the more important for reaching retirement.
Retirement benefits follow similar patterns as paid family leave, which is another reason the latter should not come at the expense of the former. It’s mostly well-paid workers currently getting paid family leave through their employers—only 6 percent of the lowest quartile of wage earners have paid family leave. This majority of lowest-paid workers are therefore more likely to look for money to fund paid family leave, if they take it at all, through arrangements such as the Ernst proposal—and then will have fewer Social Security benefits once they reach retirement age, and likely little or no savings through 401ks. Put bluntly, this proposal hits the same group of people in the wallet twice.
The Small Business Question
Senator Mike Enzi (R-WY), who attended the hearing last Wednesday, stated that he was worried about imposing restrictions on small businesses that would require them to take part in a federal government program. Senator Johnny Isakson (R-GE) echoed his concerns.
Vicki Shabo, vice president of workplace policies and strategies at the National Partnership for Women and Families—an expert who served on the hearing’s panel—said the vast majority of small business owners are for the FAMILY Act proposal, citing small business advocacy group Main Street Alliance. One of the reasons why, she explained, is because the program provides them with an opportunity to get on a more level playing field with large firms like Deloitte that can implement competitive leave policies with solely their own resources.
As Shabo also discussed, through small payroll contributions, the FAMILY Act covers most workers who take leave with a two-thirds wage replacement—freeing up assets for small businesses that might otherwise have to deal with the costs of turnover due to not being able to offer a parent paid leave, then consequently hiring and re-training a new worker thereafter.
Broader Economic Implications
The Center for American Progress has found that at least $20.6 billion in wages is lost annually due to a lack of paid family and medical leave. The paid leave proposal that Congress takes up must therefore be economically intelligent. The Republican paid leave proposal is not that. Rather, it gives Americans two options, the first being a Social Security penalty under which new parents can risk their ability to be self-sufficient later in life by borrowing from their savings meant for retirement. When those new parents grow old, joining the United States’ increasingly aging population, they may be forced to work longer to reestablish their savings—even through illness, because the plan does not include leave to care for one’s self in the case of a serious health condition, which will inevitably affect workforce productivity. At the same time, under the GOP plan, they would not be able to receive care they could have gotten from their children or grandchildren under the FAMILY Act without the caretakers risking their own jobs.
The second option, which so many people (especially women) are forced to take currently, is to keep retirement benefits intact and drop out of the workforce to be a caretaker. People who take paid leave have better economic stability. Women who took paid leave following the birth of a child were better off economically than those that did not (controlling for other differences between the two groups), according to the Center for Women and Work at Rutgers University. Leave takers were more likely to be working than non-leavers nine to twelve months after childbirth, and were 54 percent more likely to report wage increases in the following year.
Furthermore, in just two decades, the Social Security trust fund is expected to run out. Current tax rates are projected to be able to fund roughly three-quarters of scheduled benefits, but the gap must be closed. The GOP plan further depletes the trust fund without adequately addressing the future of the program.
Guaranteeing Time to Care—Without Sacrifices
At some point, nearly everyone will need to care for a new child or deal with a serious personal or family health issue—and most will want or need time away from their jobs when they do. When they do, they should have the peace of mind of guaranteed, paid, job-protected time to care without penalizing their retirement security. This model is already working in California, Rhode Island, New Jersey, and New York, and will soon be in place in Washington State and Washington, D.C. Americans who live in the other forty-five states deserve the same rights—and can have them should their representatives vote through the FAMILY Act.