Fiscal Implications of Social Security-Financed Parental Leave

We discuss the fiscal implications of a recent proposal to give workers an option to receive a parental leave benefit funded by the Social Security system if they accept an offsetting retirement benefit reduction with the same present discounted value. In principle, the proposal could avoid the harmful fiscal consequences that would arise from other parental leave proposals. We are skeptical, however, that things will work out quite that well. We are concerned that the proposal may shift fiscal burdens to future generations, reduce national saving, and undermine the retirement income function and the earmarked financing of the Social Security program.