(This article first appeared at TalkPoverty.org.)
Eighty-seven percent of workers lack paid family leave, including the vast majority of low-income workers. Fortunately, some conservatives have offered a bold new solution: pregnancy IRAs.
That’s right. In an apparent attempt to cement the United States’ status as the last industrialized nation on Earth without paid family leave, the Independent Women’s Forum proposed a system of Personal Care Accounts (PCAs) in which workers would save for their own paid leave based on the same 401(k) model that has left millions at risk of an insecure retirement.
The proposal would, of course, place the burden on individuals to save for their time off during the lowest-earning years of their lives. As Jeffrey Hayes from the Institute for Women’s Policy Research explains, the fact that women have kids early in their life means that there is very little time for parents’ savings to compound—limiting the main benefit of tax-free savings accounts as well as the savings of most people who aren’t already in the privileged position of being able to take time off.
And, there are other reasons why this proposal pales in comparison to existing plans to guarantee paid family leave.
“Personal Care Accounts” would leave out many young parents
The PCA is modeled after tax-exempt savings accounts such as Health Savings Accounts (HSAs) and 401(k)s. These savings vehicles are supposed to make it easier to accumulate wealth by allowing workers to defer paying taxes on contributions from themselves and their employer. Unfortunately, over two-thirds of 401(k) tax benefits go to the top 20 percent of households and most low-income households—the ones most unlikely to have paid leave—do not have access to a retirement account at work. Notably, the IWF is also opposed to requiring employers to provide retirement benefits, indicating that their commitment to access is about as robust as our current paid leave laws.
The PCA would actually help even fewer people than does the 401(k) since younger workers have less money to save and are in a lower tax bracket, which means they benefit less from deferring taxes than older households. Indeed, the median income of a household headed by individuals between the ages of 25-34 is just $53,000 compared to $84,000 for 45-54 year olds. Given their lower incomes, it is no surprise that young adults have not been able to build very much wealth: the median young household actually has saved $0 for retirement. And so, at a time when half of all households say they could not come up with $400 for a financial emergency without selling assets or borrowing money, it is not credible to claim that young people should save for their paid leave—which they may similarly need unexpectedly—in yet another account.
Further limiting access, in order to use the PCA, a worker would have to have access to unpaid time off at work. However, the Family and Medical Leave Act—the current law that guarantees job-protected, unpaid time off—fails to cover about 40 percent of workers.
The likely use of PCAs? Increasing the limit on tax-free savings for the rich.
Low- and moderate-income households already pay little in federal taxes because of their low incomes: the bottom three quintiles of families with children pay an average of just $3,700 per year in individual and payroll taxes combined. So they don’t have much to gain from tax-free savings.
But, there is one group that does indeed stand to benefit from the use of PCAs: the rich. A saver in the top tax bracket would avoid paying about 40 cents in federal income taxes for every dollar they contribute—a huge subsidy from the government. PCAs would simply increase the number of accounts that well-off Americans can use to reduce their tax burden—after maxing out their 401(k), IRA, and health savings account, they would be able to stow away another $5,000 tax-free per year. The IWF did cap PCAs at $30,000—roughly two years of working full-time at the federal minimum wage—to limit the amount of sheltered income. But that means the plan will allow wealthy individuals to accumulate an additional $30,000 in tax-sheltered savings—or $60,000 per couple—resulting in less revenue for government services that would benefit the very low-income people left out in the cold under this policy proposal.
IWF itself doesn’t think PCAs will do the job
Strikingly, IWF itself implicitly admits that its proposal of tax-deferred saving would not be enough for working women by saying that wealthy individuals and corporations could fund PCAs out of charity. The report says:
“Additionally, non-profits could be established by generous individuals as well as larger corporations as part of their social corporate responsibility efforts to help set up and fund PCAs for lower income workers, in order to help provide leave benefits for those facing the biggest financial challenges. Many generous individuals and foundations are interested in helping people during times of childbirth or illness and would support such a cause.”
In other words, IWF is counting on a magical change in corporate and philanthropic behavior to pay for parental leave. Take retirement as an example. Although middle-class workers are facing a retirement crisis, there is no sign that corporations have decided to fill empty 401(k)s with their social responsibility funds. Surely, nothing will stop these same generous individuals and larger corporations from stepping up to fund paid leave for lower-income workers today.
To be sure, making it easier for Americans to save for the future is very important. But when it comes to providing paid leave, there are much better solutions than hoping that individuals save enough during the lowest-earning years of their lives to cover their time off. Policies put forward by progressive members of Congress would substantially increase access to paid family and medical leave, instead of just giving yet another tax break to those who can already afford to save. It’s well past time to ensure that all Americans, no matter where they live—or how much they’re able to save—are able to take time off to care for their families.