Policies that aim to make California’s paid family leave program more progressive tell a cautionary tale. They also may give low-wage workers across the country cause to thank centrist Senate Democrats for blocking a similar initiative tucked in President Joe Biden’s failed Build Back Better legislation.
The Golden State’s first-in-the-nation paid leave program, financed through a 1.1% payroll tax on workers, redistributes money from lower-income to higher-income families. Many low-income workers who pay into the program say it does not pay enough in benefits for them to afford to take time away from work.
REPUBLICANS STRUGGLE WITH COHESIVE MESSAGE ON FAMILY POLICIES POST-DOBBS
The data confirm as much. A report from CalMatters found that higher-income workers are much more likely to take time off under the program, which offers up to eight weeks of paid leave. According to the report, from 2017 to 2019, “claims by workers making less than $20,000 a year declined while they rose for all other workers.” Leave claims increased most for those making $100,000 or more, according to the Employment Development Department.
Democratic Gov. Gavin Newsom signed legislation recently to address this problem. Under the new state policy, beginning in 2025, benefits for lower-income workers will increase to 90% of their wages and 70% for other workers. Until then, the bill will keep the program’s current wage replacement rates, which have stricter benefit limits: 70% of pay for the lowest-income workers, who make as much as $27,000 a year, and 60% for the rest.
“Until now, workers who couldn’t afford a 40% pay cut were being forced to keep working against their doctor’s orders, to work up until the day they go into labor, to leave ill family members without adequate care, and to return to work right after having a child. SB 951 finally ends this inhumane status quo,” Katherine Wutchiett, a Legal Aid at Work staff attorney, said of the legislation.
It will be many years before we will know whether Newsom’s policy change will fix the paid leave program. Though a form of social insurance, California’s paid family leave program is doubly regressive. Its flat tax affects low-income people the most, while the benefit structure locks out many who can’t afford to take a break from work.
The public often assumes that social insurance programs operate fairly. California’s paid family leave experience shows this is not always the case. But that shouldn’t come as a surprise. Political pressure for public benefits typically comes from the middle class. Programs are designed by policymakers with middle-to-high-income life experiences who may not be attuned to problems that low-wage workers face. National advocates, for example, have emphasized providing paid family leave more than paid sick days, even though paid sick days would be most beneficial to low-wage workers and result in a smaller cost burden.
Rather than targeting benefits to only the poorest and most vulnerable, as welfare programs such as Medicaid, TANF (welfare), SNAP (food stamps) programs do, social insurance involves collecting contributions, typically through taxation, and distributing benefits among the entire population or a major cross-section of it. At the national level, the most important social insurance programs are Social Security and Medicare.
Democrats hoped to expand social insurance programs by setting up universal paid leave provisions in Biden’s Build Back Better legislation, which passed the House in 2021 before failing in the Senate. The legislation lacked clarity concerning the program’s structure and how it might affect different income groups.
The benefits would have been provided through a program run by the Social Security Administration covering all public and private sector workers without regard to employer size, including part-time and self-employed workers. The legislation also made room for paid leave to be provided through “legacy state” paid leave programs or employer plans that met benefit equivalency tests.
Low-wage workers might be fortunate the provision never passed. If Build Back Better had become law and Democrats decided to emulate California’s approach to paid leave, billions of dollars might have flowed from cooks, health aides, janitors, retail staff, and others struggling to make ends meet to higher earners.
As for Social Security, the progressivity of its wage replacement structure and disability benefits more than compensate for the program’s regressive payroll tax. However, as I have written before, two trends related to growing economic inequality have made the nation’s bedrock social insurance program less progressive.
First, as people at the top of the economic spectrum amass equities, bonds, and other assets, the portion of national income from capital investment has increased significantly. In the United States, labor’s share of earnings fell about 8 percentage points between 1995 and 2013. Since Social Security relies primarily on a tax on labor for its sustenance, the relative growth of capital income gradually is choking off its access to revenue.
Second, as discussed in a paper published by the Society of Actuaries, the widening gap in life span between high- and low-income people has had the effect of raising lifetime Social Security benefits for high earners but not for low earners. Defenders of the program typically focus on differences in monthly payments, which remain progressive. But viewed on a lifetime cost/benefit basis, Social Security has become relatively less beneficial to low-wage workers, particularly those who happen to die before retirement age.
In light of these trends and the concern that many retirees fall below the poverty line, Congress is facing increased pressure to raise benefits for those at the bottom — even from some conservative analysts.
When Congress eventually begins the painful task of filling Social Security’s financial shortfall, it should learn from California’s mistakes and do a thorough distributional analysis to make sure money is not being funneled from the bottom to the top of the economic pyramid.
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Karl Polzer is the founder of the Center on Capital & Social Equity.
