Paid Maternity Leave: Employers or Taxpayers should Pay?

Hillary Clinton went on record on Mother’s Day advocating for paid maternity leave (video). Future President Clinton doesn’t explain who should write the checks to people who aren’t working, but the implication is that it should be employers. Let’s assume that if a professional politician is saying something it is a message that Americans are enthusiastic about hearing.

But if this is so important to the country, why shouldn’t taxpayers pay? If we make employers pay, won’t that discourage them from hiring women who either are or could become pregnant? Would you want to hire a woman with an 8-month belly knowing that, over the next five months you’ll pay for five months of work and get one month of productivity?

People who advocate for paid maternity leave justify the idea on the grounds that the U.S. needs more taxpayers to keep the various Ponzi schemes run by local, state, and federal governments going. Who will pay the Social Security and Medicare taxes if not the yet-to-be-born? Who will fill the canyons that we have cut through the pension funds of New Jersey, Illinois, and various cities if not the yet-to-be-born?

If that is truly the justification for subsidizing the fertile, why is it Walmart’s job yet again to do the subsidizing? If all of us benefit as citizens from having 500 million people in the U.S. rather than 320 million, shouldn’t we all pay?

Nobody seems to mention the potential citizen-to-citizen equity issue. Childless citizens are already paying for income tax credits, child care tax credits, and the world’s most expensive K-12 education system for which they have no personal use (plus free community college for other citizens’ children and subsidized state universities). Once the new requirements for employers are in place these childless citizens will have to work a little harder all year so that those who are blessed with children can have paid time off.

Let’s consider two single co-workers in Massachusetts, Jen and Sue. Both earn $ 100,000 per year, $ 68,000 after taxes. Jen is infertile. Sue goes to a bar and has sex with a dermatologist earning $ 500,000 per year. Sue is now entitled to 23 years of child support, which should work out to roughly $ 75,000 per year tax-free (see the Massachusetts chapter of Real World Divorce). As soon as the baby emerges, Sue can file as head of household and her take-home pay goes to $ 69,000 per year. She’ll also be entitled to a $ 3,000 per year tax credit for child care if she decides to continue working. Sue’s spending power now goes up to $ 147,000 per year, 2.16X her childless co-worker’s. At least for four years, until the child is eligible for the free pre-K programs that the government wants to offer, she’ll have about $ 20,000 per year in expenses but that should drop down closer to $ 5,000 per year once the child is in K-12 (see William Comanor’s analysis in previous posting). Even if we were to assume the $ 20,000 per year cost continued for all 23 years, and further assume that the father couldn’t be saddled with these costs on top of the child support (as is typical; see the Kosow v. Shuman case in the chapter), the worker who had sex with the dermatologist can out-spend the childless worker by 1.87:1. When they have identical skills and W2 incomes, can it be fair for the lonely childless person who can spend $ 68,000 per year to subsidize the co-worker who can spend $ 127,000 per year and is blessed with the company of a child?

Let’s look at what would happen in Wisconsin at a lower income level. Melissa and Brenda both earn $ 50,000 per year. Melissa is infertile. Brenda has sex with a married plumber earning $ 140,000 per year. Brenda is entitled to $ 23,800 per year (17 percent of the plumber’s income; see Wisconsin chapter) in tax-free child support. Melissa will take home $ 36,738 per year. Brenda will take home $ 37,763 per year, which gives her a total spending power of $ 61,563, a 1.68:1 ratio compared to Melissa. Day care costs about $ 10,000 per year in Wisconsin so, after adjusting for the $ 3,000 per year tax credit, Brenda will have to spend about $ 7,000 per year on day care for 4-5 years if she wants to keep her job. Suppose that Brenda finds it tough to make ends meet on $ 61,563 per year? She has sex with the school principal of her first child’s kindergarten. He earns $ 130,000 per year (Wisconsin State Journal), which means that the resulting child will generate tax-free revenue of $ 22,100 per year. Now Brenda will have a total spending power of $ 38,613 from wages (one more dependent) plus $ 45,900 from child support for a total of $ 84,513, very comfortably above the median Wisconsin household pre-tax income of $ 49,000 per year. When they have identical skills and jobs, is it fair that Melissa have to work harder to help out Brenda, whose spending power is 2.3X her own?

Let’s suppose that we do think it is fair for childless workers to subsidize workers with children, even when those children are yielding a substantial profit. And let’s suppose that the goal is to get Americans to have more children so that they can grow up to pay for public employee pensions and federal entitlements. Are we subsidizing Americans with children intelligently?

The child dependent tax credit is the same in Year 0 when a child can be expensive and hard to care for as it is in Year 17 when the child may have a job and actually be contributing to the family income. A typical American will also enjoy a higher income from wages when children are 17 than when children are born, simply due to normal career advances. Behavioral economists, such Daniel Kahneman, have found that people respond very weakly to incentives that are 18 years in the future. Wouldn’t it make sense to front-load some of the cash benefits that the childless give, filtered through the government, to those with children? K-12 schooling is the most expensive thing that the government does for Americans with children and it is back-loaded, without any benefit for the first five years of childhood. Why not take all of the tax credits and deductions that we currently give to American parents over 18 years and cram them into the first five? If a higher fertility rate is the goal, perhaps also eliminate public subsidies for college (most of which is pocketed by colleges through higher tuition) and spend the money during this 0-5 period? Young people, just starting out in their careers, should be a lot more motivated to have children if they know that nearly all of their pre-K expenses will be covered by the government. If the kids get a little more costly later…. well, they’ll deal with that when the time comes.

Thoughts from readers?

Philip Greenspun’s Weblog

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