Children may be priceless, but taking leave to care for them, or for an illness for that matter, certainly isn’t. The collective cost of paying for a variety of leave benefits could top many billions of dollars each year, according to several estimates.
The cost of such benefits matters because paying for paid leave, and the ultimate fiscal impact of doing so, is one of the largest barriers to consensus and compromise among lawmakers’ different plans to provide paid time off to care for a family member or tend to an illness.
Democrats want a national paid leave plan where the benefits are paid for now, in a collective manner, while many Republicans prefer a method where benefits are paid for later, and earned at an individual level. Both sides have expressed concern over the ultimate cost of the opposing party’s plan, and dueling analyses paint different pictures of the price of each party’s programs.
Ultimately, it’s the type of leave covered—parental leave, sick leave, family care leave, or some combination—and how many people can, or will, access the benefit that would have the biggest impact on costs.
Determining the cost of any one plan is “really a question of what behavioral assumptions you end up making” about how people will use the benefits, Aparna Mathur, resident scholar in economic policies at the American Enterprise Institute, said. “Eventually this all has to play out in practice. Depending on the design of the program, take-up rates vary a lot.”
“I still think there is a whole range of cost estimates, and we won’t know until we start applying the program on an experimental basis,” Mathur, who co-directs the AEI-Brookings Institution working group on paid leave, said.
Leave Type, Other Factors Change the Equation
The main factor that changes the cost calculation is the number of people likely to use the leave, and that largely depends on whether the program guarantees a worker will be able to return to the job after taking leave and what kinds of leave are covered.
Moreover, not all leave costs are created equal. The AEI-Brookings working group found that personal medical leave is the most expensive to cover, parental leave falls in the middle, and family care leave is the least costly.
The calculations are based on an average weekly wage reimbursement of $452. Potential wage reimbursements in the Democrat and Republican paid leave proposals are likely higher, ranging from $580 to $4,000 in the FAMILY Act (66 percent of wages) and determined by Social Security’s Primary Insurance Amount based on their qualifying wages in the CRADLE Act and New Parents Act.
Based on private sector use of leave afforded under the 1993 Family and Medical Leave Act, the AEI-Brookings working group estimated that if 13 million workers took paid leave for a medical issue for an average of 4.7 weeks at $452 per week, it would cost $27.5 million in benefits.
For new parents, 4.7 million workers taking 5.6 weeks of paid leave would cost $11.57 million.
And for family caregiving leave, the report found that if 5.9 million workers took an average 2.7 weeks off, it would total $7.05 million in benefits.
The working group also found that existing state-level paid family and medical leave social insurance programs run administrative costs of roughly 5 percent of total benefits paid annually, and that administrative costs for a national paid leave program would likely follow suit.
Different Groups, Different Math
The American Action Forum—a conservative economic think tank—has been at the fore in trying to predict the cost of paid leave plans.
Last year it analyzed Sen.
The AAF calculated Rubio’s plan would have cost $10.5 billion in 2019 and $227.6 billion from 2019 to 2034. About $226.2 billion (99.4 percent) of the program’s cost would be a net cost to the Social Security Trust Funds before the Trust Funds’ exhaustion, and the result would lead to an advancing of the 2034 exhaustion date by about six months, the AAF said.
The New Parents Act and the CRADLE Act, from Sens.
In March, the AAF released another report analyzing the potential costs of the Democratic bill, the FAMILY Act, based on leave usage data from the FMLA and state paid family and medical leave programs. The AAF predicted 45.5 million workers would claim paid leave benefits, at a cost of $203.2 billion to $226.8 billion. Those high usage estimates would mean that the plan’s proposed 0.4 percent payroll tax would only cover 15 percent of benefit payments, and would need to increase to “as high as 2.9 percent” to cover all the benefits.
But the AAF’s numbers “are completely inflated,” a Democratic congressional aide familiar with the proposal told Bloomberg Law. “It’s purposefully meant to make it seem like we’re out of control, when the numbers don’t even add up.”
For example, the AAF report estimates 16.5 million people would take leave for a new child, but birthrates don’t indicate the number would be that high, said the aide, who spoke on condition of anonymity. In 2017 there were only 4 million births, meaning at most about 8 million parents would be eligible to take leave.
The intent of the FAMILY Act is for the leave program to be “fully sustainable and funded by the employee and employer contributions,” the aide said.