The American Families Plan Comes with a Modest Price Tag for Paid Leave but a Large Impact for Workers
As part of its Build Back Better agenda, the Biden-Harris administration is preparing to release the American Families Plan, a set of proposals aimed at rebuilding the economy, with a focus on addressing structural inequalities and supporting families. Though full details of the plan are not yet available, the overall package is expected to total roughly $1 trillion and will be largely financed by new taxes on the wealthy. Paid family and medical leave is highlighted as a key investment in care infrastructure, along with an expanded child tax credit, more child care spending, and universal prekindergarten.
Initial estimates from the administration reported by the press suggest its proposal for paid leave will cost about $225 billion over 10 years. This is much lower than previous estimates of the Family and Medical Insurance Leave (FAMILY) Act, which the White House proposal is expected to resemble, and aligns with data available on state program use. It may also reflect some policy tweaks to enhance the equity and progressivity of benefits while trimming costs, but these details aren’t yet available.
The American Families Plan suggests that enacting a federal paid leave program that dramatically expands access while reducing disparities across wage levels and occupations can be achieved at a reasonable price tag.
State paid leave programs show modest use by workers
Paid leave benefits replace wages for workers who take time off to deal with their own or a family member’s serious illness or to care for a new child. They carry important health and economic benefits for workers, children, and families. But right now, only about 21 percent of workers have access to paid family leave, and 40 percent have access to paid medical leave (PDF). Access is even less available for lower-wage and part-time workers and varies greatly by occupation.
Because benefits are employment based and driven by workers’ earnings, much like workers’ compensation, unemployment insurance, or Social Security benefits, a national paid leave program would be a sizable and important expansion of social insurance protections. And it would directly benefit some of the most economically vulnerable workers.
Paid leave benefits are also relatively inexpensive because worker use is very modest. The average length of parental leave in California, New Jersey, and Rhode Island ranges from roughly three and a half to five and a half weeks. Workers’ own medical leaves, which make up most claims in state paid leave programs, range from 10 weeks in New Jersey, where 26 weeks is allowed, to 16.2 weeks in California, where up to one year of leave is available.
A recent study examining states’ take-up rates for paid leave estimated the FAMILY Act would cost roughly 0.57 percent of Social Security taxable payroll, or roughly $35 billion a year once fully phased in. This estimate is consistent with a 10-year budget cost of $225 billion for the American Families Plan after taking into account time needed to stand up the program and ramp up benefits. This estimate relies more heavily on state take-up rates than earlier estimates released by the Congressional Budget Office and the Social Security Administration (PDF). All three are generally consistent with each other—any differences reflect the uncertainty around predicting worker behavior in the context of a new national program.
What does this price tag mean?
The American Families Plan’s more modest price tag for paid leave shows that Congress can take action on this important policy at a reasonable cost. The COVID-19 pandemic has opened the nation’s eyes to how interconnected our work lives are with the ability to care for ourselves and our family members. Enacting a national paid leave program would not only expand access to benefits for a majority of US workers, but it would also address structural economic inequalities by improving access across income groups and occupations, ensuring the most vulnerable workers aren’t left behind.
The Urban Institute has the evidence to show what it will take to create a society where everyone has a fair shot at achieving their vision of success.
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