Paid Maternity Leave: Employers or Taxpayers should Pay?

by philg

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?

24 thoughts on “Paid Maternity Leave: Employers or Taxpayers should Pay?”

  1. 1) Yes tax-payers should pay, not employers. Any social welfare should be “portable” and not dependent on each company. The administrative costs of the government for insurance-type programs are pretty minor compared with the costs of employing HR, consultants, administrators in every firm plus in every insurance company.

    For example In NJ the paid family leave benefit is small but real help to just the folks you did not describe (Melissa maries a single apprentice plumber earning $25,000 in a somewhat expensive Bergen County, they saved up for fertility treatment and got pregnant but Melissa will be out of work for a minimum of 12 weeks to recover after a difficult pregnancy..) Having contributed 0.09% of their taxable wages, they will receive about $604 (maximum) per week during her leave.

    2) I like the idea of front-loading benefits for children as inducement to younger people. What’s rational for individual young people (not having children when they are uncertain about job security, relocation, securing sufficient housing or schools, securing healthcare, partly alleviated by ACA) is less rational for the country – fewer children, older parents.

    later? …Colleges need to get much cheaper one way or another – fewer vanity buildings perhaps.

    As for equity, “Childless” are people too of course, but “Child-ed” are twice the people.

  2. Most companies that are interested to retain workers have some or the other form of maternal leave. Those that don’t probably don’t because employees are low skill and easily replaceable. Such employees should not have problems to get similar low-skills positions they held before pregnancies – newborn care time does not produce skill gap unlike for skilled worker. Saying that we all should be interested in providing new mother with sufficient time to rear a newborn. Child dependent credit is minimal but every child will pay taxes that will pay social security and medicare for his/her parents and infertile worker as well. We should be very careful to make sure that tax-payer funded expenses are not resulting in socialized child rearing that is to often results in anti-social adult, there are myriad examples of this at home and abroad.

  4. You are using too much logic here. The appeal of the Democrat Party to their average voter is “More Free Stuff!” If you don’t have to pay for it yourself, it’s free, regardless of whether it is paid by your employer or the taxpayers or the tooth fairy. All of Obamacare was based on this premise.

  6. Making employers pay for *parental* leave would minimize the imbalance of employers not hiring women due to (in theory) equal likelihood of lost time.

  7. It isn’t unfair to expect childless workers to share the burden of raising the next generation. When the childless workers retire, those children will be growing the food they eat and staffing the hospitals they use.

  9. Michael: Thanks for the chart, but it doesn’t say who pays for the leave, the central question of the original posting. https://en.wikipedia.org/wiki/Parental_leave#Variation_in_international_law has a chart that includes the source of the cash. Singapore is kind of interesting. A child support profiteer there doesn’t get any maternity leave (restricted to married women). Most of the European countries whose welfare states a lot of Americans admire seem to have taxpayer-funded parental leave (i.e., they don’t force employers/shareholders to pay via a Hillary Clinton-style government directive).

    Anonymous: What if the childless worker is getting food from farms staffed by immigrants (or farms that are in Mexico)? Going to hospitals staffed by immigrants as well?

    Kyle, Sam: In a society trending toward the majority of births being to unmarried women, how does paternity leave work? Does the employer require the NIPP test that is favored by abortion retailers (see http://www.realworlddivorce.com/ChildSupportLitigationWithoutMarriage )? Is there a requirement that the father and mother live at the same address?

  10. My understanding is that eligibility criteria for paternity leave in most countries doesn’t include marital status or mailing address. Typically leave benefits are payable for biological, adoptive, or legally recognized parents. I would imagine that an NIPP test or similar is not required if the father elects to have his name on the child’s birth certificate, therefore being legally recognized as the parent.

  11. I’m surprised the democrats are for the inequality that comes with mandated paid leave.

    Why force a company to pay a lawyer 10x as much as a janitor when both are on leave and not doing any work for the company? I can see why the company might *want* to keep paying the lawyer’s salary to retain her, but for the government to force this inequality seems like it’d be against the democrats’ supposed principles.

  12. philg,
    You are treating immigrants as cornucopia. You assume that other countries are interested and always be interested to produce more children to supply US retirees with cheap services and that immigrants themselves are not interest in services most likely they are coming to this country for in first place.

  13. I think the benefits of “free” K-12 education is becoming over rated. In a good public school district, the portion of property tax that goes to fund local school is already approaching the cost of good private school for one child. If you live in a good area with good schools, I think there’s a huge incentive to have as many kids as possible and stuff them into the public school.
    The downside to this growing trend is people are forced out of their homes as soon as their kids reach college age. Very few are willing to subsidize other peoples’ kids.

  14. Robert: Obviously the American public school system is not designed for efficiency or quality of education, but there is still some value to 13 years of taxpayer-funded babysitting. And I don’t think that it is practical for a childless taxpayer to escape subsidizing a school system. Some states have state-wide funding for schools (I think that California is an example) so you would pay even if you lived in a town with no schools and no children. In other states it may become necessary to use state-wide funds to pay teacher pensions, whose cost may eventually exceed the cost of paying salaries for current teachers. Taxpayers also subsidize private schools, which are generally non-profit, with charitable contribution deductions and property tax exemptions.

  15. Any idea what fraction parents eligible for child support (using eligible expansively i.e. people raising children who could reasonably expect some help from another parent who isn’t living with them) actually make a profit from the child support they receive (defining profit as receiving more in child support than they actually spend on the child)?

  17. Isn’t number of child support profiteers bound to be limited by limited supply of high income males? I,e, it is not going to work for the masses (99%, 95%, 90% etc…)

  18. None of the attorneys whom we interviewed said that any of their properly advised and motivated clients ever had any difficulty finding a high-income partner for a night. But in any case an adult who is able to obtain custody of multiple children from multiple co-parents can make a good living targeting moderate income defendants. The Massachusetts formula, for example, means that a defendant earning $104,000 per year yields child support of $21,476 per year. Three children from three defendants therefore results in an after-tax spending power of $64,428, a considerable boost for many households. http://www.boston.com/business/gallery/medianincomesinmass/ shows that there are plenty of communities in the Boston area where a target could be selected at random and likely earn at least $104,000 per year.

    Also keep in mind that a person can have sex in a high-income part of a state and then reside in a low-cost area. This is much tougher to do with a W2 job unless you’re willing to commute 3 hours/day.

    But really why does the number of child support profiteers matter? Whether it is millions of Americans or tens of millions, wouldn’t we still want laws that were equitable between the fertile and the infertile?

  19. Looks like win-win situation for someone mmaking $104,000 in such high-priced city as Boston, defendant lost $21,476 pre-tax (~15,000 after tax?) to pass his genes on. It costs much more to have a family.

  20. Anonymous: Child support in the U.S. is not tax-deductible to the defendant and not taxable to the plaintiff. So this defendant will have to earn about $35,000 per year pre-tax to pay a plaintiff $21,476. Over 23 years that’s $805,000. In addition, the defendant will have to provide a room, food, and clothing for the child and take care of the child 1/3rd of the time. If the defendant does not do that, the plaintiff is entitled to additional child support (up to judicial discretion but let’s say the total goes up to $1.15 million pre-tax). In addition the defendant may be responsible for up to 100% of the child’s actual expenses, such as day care, private school tuition, college tuition, uninsured medical. The defendant will also have to purchase life insurance for the benefit of the plaintiff. So the total pre-tax cost could exceed $2 million for a defendant earning $104,000 per year. This also assumes perfect agreement between plaintiff and defendant and no legal fees. If there is litigation it is conventional in Massachusetts for the higher-income defendant to have to pay the legal fees of the plaintiff (any child support received for previous children is not counted as “income”). So it might make sense to budget for an additional $200,000 in post-tax dollars for fees or $350,000 pre-tax.

    Does it cost much more than $2.35 million pre-tax to have one additional child in the U.S. within a standard family structure? Let’s hope not, since most Americans don’t have that much…

  21. Looking at the numbers from realworlddivorce it would appear that depending on your assumptions somewhere around 0.5% – 5% of the parents who collected a universal maternity leave benefit would end up as child support profiteers. That seems like a pretty marginal issue compared to the others raised by the post (e.g. should the government or employers pay a maternity benefit).

  22. Anonymous: If you don’t want to look at Americans who are collecting profitable child support you could simply look at two workers, one of whom is unattractive/charmless and one of whom is attractive/charming. The attractive/charming worker is able to find a mate and has children. In addition to the joy that she gets from having her kids around she also can spend a large fraction of her mate’s income. The unattractive/charmless worker cannot find a mate and does not have children. She is restricted to spending her own after tax income. The situation is a little tougher to analyze than in the unmarried/collecting-child-support situation because it is unclear exactly what fraction of a mate’s income can be spent.

    Having lost the attractiveness and charm lottery, why does the childless/mateless worker have to work harder so that the winner of the attractiveness/charm lottery can have paid time off in addition to her higher annual spending power?

  23. Married female professionals with children are an asset. Have seen many examples when women stayed in the company and were treasured for their skill, specific business subject fluency and reliability long after many male employees that started at the same time were gone.

  24. Those examples are statistically irrelevant, though, as the data doesn’t reflect that married female professionals have longer careers than married male professionals.

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