The voices of Tax Policy Center's researchers and staff
My husband and I started our family in 2005. We both worked full-time: He for a large multinational corporation, and I for a small nonprofit. My employer offered 12 weeks of unpaid family leave, even though it was too small to be covered under the Family and Medical Leave Act (FMLA).
Our family was lucky: We were two adults who could both work but could manage on one income. But what about others not so fortunate? GOP presidential candidate Marco Rubio says today’s family leave policy “too often forces workers—especially new mothers—to quit their job permanently when they need time away… making it harder to return to work.”
So he proposes a carrot to encourage employers to provide 4-12 weeks of paid family leave—a 25 percent non-refundable tax credit up to $4,000 per employee per year. The United States is one of seven countries out of 188 nations that do not provide paid maternity leave. Will its private employers pay their employees to be home with their families for a 25 percent tax credit? Is that carrot sweet enough?
The federal tax code is veritable garden of carrot-like incentives aimed at changing the way businesses operate. Consider the Work Opportunity Tax Credit. Instead of subsidizing employers that offer paid leave, the government offers firms a tax cut for hiring workers who face a barrier to employment, such as a veteran or a person with a disability. Employers can claim a 25 percent credit up to 40 percent of the new employee's first-year wages. Employers claim about $1 billion in WOTC each year.
To me, and maybe to the average Joe or Jane on the street, that sounds pretty wonderful. Employers have an incentive to hire Americans who need jobs the most. And if employers claim $1 billion in credits a year, it must be working. Companies must be changing, going out of their way to help workers who face disadvantages. Right?
Not really. WOTC has had little effect on hiring choices or retention. Most of the benefits of the program seem to go to big companies with high turnover and whose workers earn low wages. That translates into “windfall costs” for the government: Employers are getting a tax credit for hiring people they would probably have hired anyway.
Would Rubio’s paid family leave tax credit suffer the same fate? Maybe. Employers that could afford to offer paid leave in the first place might do it, given the 25 percent credit. What might those employers look like? Here’s a list of 20 US companies that currently offer paid maternity leave, ranging from four weeks to 39 weeks. They’re companies like Ernst & Young, Google, Facebook, and Microsoft. Here’s another list of 20 that offer paid paternity leave, including Patagonia, Comcast, and Deloitte. As you can imagine, the lists also have companies in common. They are all big employers with, in all likelihood, big earnings. Do they need a tax credit?
As for employers who can’t afford to grant leave—wouldn’t they just say “no thanks” to the carrot? TPC’s Elaine Maag and Sarah Glynn of the Center for American Progress point out that the carrot is rather small. Plus, there’s no stick whacking such companies on the backside, requiring them to provide paid leave.
Rubio’s got a dilemma. He wants businesses to do the right thing and support families, but he doesn’t want to force them. He wants them to… want to. And maybe, barring a new federal law requiring employers to provide paid family leave, a tax credit is the way to go. After all, the Work Opportunity Tax Credit has been around for nearly 20 years. But WOTC’s staying power isn’t a reflection of its effectiveness. It’s just that nobody’s found a better way to subsidize private sector work on a broad scale.
In 2011, Elizabeth Lower-Basch of the Center for Law and Social Policy argued that the WOTC tax subsidy should be redirected to the US Department of Labor as a direct spending program to support job subsidies. A retooled effort could follow the successful example set by the Temporary Assistance for Needy Families Emergency Fund (TANF-EF). Enacted under the American Recovery and Reinvestment Act, states used TANF-EF money to subsidize private sector employment in 2009 and 2010, sometimes to the tune of 100 percent for several months. By the time federal funding expired five years ago, states reported engaging approximately 260,000 people in subsidized private sector jobs.
Meanwhile, in the District of Columbia, the DC Council may be about to require employers to offer workers up to 16 weeks of paid family leave. The benefit would be funded with a special employer tax and has earned the ire of the DC Chamber of Commerce, which says it would make the city uncompetitive.
But Rubio might have a bigger problem than choosing between a tax incentive and a government mandate, or picking the right size of his tax credit. Isn’t he really trying to encourage a change not only in family leave, but in corporate culture? Ten years ago, my husband could have taken unpaid family leave when I did, since his employer was covered under FMLA. We could have afforded it, but men in his division of the firm just didn’t tend to take extended time off to be with their families. They still don’t. I doubt a 25 percent employer tax credit will change that.
Sometimes sticks work better than carrots.
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Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.