Marco Rubio's Parental Leave Plan
In a speech at the Values Voter Summit on Friday, Marco Rubio offered a proposal for family leave. Under current law, most new parents (and those caring for the sick) are allowed to take twelve weeks off, but employers aren't required to pay for the time. To encourage paid leave, Rubio would offer businesses a 25 percent tax credit for any wages paid, provided the business offers all employees full pay during leave and allows them to take at least four weeks. The credit is capped at twelve weeks and $4,000.
I've explained my thoughts on parental leave before: If the government wants to use taxpayer money to help new parents, it would be easiest and fairest to just collect the money through taxes, divide it up, and give it to the parents whether they take leave or not. This would enable parents to take time off without bribing them to, and each family could decide for itself what arrangement is best. Stay-at-home parents wouldn't be left out of the benefit, and neither would those who wanted to return to work as soon as possible — and in the latter case, those parents could be rewarded with higher pay for doing more work, rather than getting paid the same whether they went to work or not.
Even if we're going to fund parental leave, however, I don't understand why we'd do it the way Rubio proposes.
The normal way of doing this — the way endorsed by the Democratic candidates and actually enacted in a few states — is to collect money through a payroll tax and use it to replace some percentage of employees' income when they're off. This approach has much to recommend it. All workers pay in, all workers have access to leave when they need it (though not everyone will), and higher payouts for the rich simply reflect the fact that they pay more into the system. It functions much the way Social Security and disability insurance do.
Everyone will pay for Rubio's system, too — when the government collects less tax revenue, taxpayers need to make up the difference eventually — but not everyone will be able to benefit, even if they are employed, have a baby, and want to take leave. Currently, a strong majority of companies don't offer paid leave to both parents. And since the credit covers only 25 percent of the cost, many employers will still decide against giving everyone at least four weeks, as Jonathan Cohn has emphasized.
Essentially, we'll all be subsidizing parental leave for just a haphazard subset of workers, with bigger subsidies going to the richer ones, because the size of the credit depends on the worker's wage. Richer workers are also more likely to have paid leave to begin with.
Another problem is that the credit isn't refundable, meaning that businesses that don't owe taxes can't benefit from it, and thus will have no added incentive to offer paid leave. It's hard to say exactly how big the problem will be, considering that the bill the plan is based on delivers the subsidy through the "General Business Credit" — which can be "carried" to other tax years when it isn't fully used, meaning the subsidy is often delayed rather than lost when it can't be used right away. But it's worth noting that only about half of businesses subject to corporate income taxes had net income in 2012, and of those with income, more than 41 percent still had no tax liability.
This is a curious and somewhat convoluted way of implementing paid leave. It will be interesting to see how it plays with voters, especially relative to the Democrats' more comprehensive and straightforward approach.
Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen