James Capretta of the Ethics and Public Policy Center outlines one of the little-recognized problems with government-run pension programs like Social Security.
“Foreign as it may sound to the modern ear, a motivation for having children in earlier times was economic security in old age. As parents became frail and less productive, it was expected that one or more of their adult children would take care of them. Married couples thus ‘invested’ in numerous children, in part to ensure the next generation would have the economic capacity to provide for them in their final years. With state-run Social Security schemes, the government has largely absorbed this family responsibility. Married couples have a much diminished economic incentive to have children because now they are counting on—and paying for—government-based old-age support,” he writes.
This isn’t a problem if you have high fertility rates like the United States (and many countries) had immediately after the Second World War. So what’s the problem? Birth rates weren’t maintained and have in fact dropped since 1960. So today there are fewer younger workers in the economy and now these Baby Boomers are retiring (and living longer, too, than every before).
To keep Social Security solvent, Capretta suggests several ideas, including Congress giving authority to the Social Security Administration to adjust the retirement age and calibrating benefits based on the number of workers-to-retirees in the economy.
He also recommended something he dubbed ”fertility-enhancing reform” that would increase the benefit formula to those Social Security recipients who contributed more workers to the economy. Such a proposal would certainly awake everyone’s eyes to the link between Social Security’s solvency and today’s birth rates.
Ramesh Ponnuru, senior editor of National Review, wrote about another proposal here at CatholicVote.org to ensure Social Security’s solvency by rewarding families that make the financial sacrifice of having more children. Ponnuru echoes the concerns of Capretta that our government’s Social Security program is completely dependent on today’s families having children.
In the world before these entitlements, most people depended on their kids to take care of them in old age.
We still depend on our kids, but we now do so collectively. As a result those who do not have children (or economically successful children) are at much lower risk of destitution in old age. But we have purchased this benefit at a cost. That parents no longer reap the reward for their financial sacrifices is both unfair and dangerous. It is unfair because the government does not acknowledge the contribution that those sacrifices make to its future fiscal health. It is dangerous because it makes adults less willing and able to make those necessary sacrifices in the first place. To put it in simplest terms, money that could have gone into starting or expanding a family instead must go to payroll taxes.
A solution to this problem—probably the only practical solution—is for the government to acknowledge the investment that people make in their children by granting parents tax relief. The economist Robert Stein has calculated that for the government to offset the anti-family bias of its existing policies would require that parents receive a $4,000 reduction in their tax bill each year for each child they are raising. (The current tax credit is worth only $1,000 and is not available to all taxpayers.)
Many people today are recognizing that government spending on Social Security and Medicare are soaring out of control. While it is clear that cost containment is needed, kudos to Ponnuru and Capretta for not only sounding the alarm about why these entitlement programs are so demographically imbalanced, but also for offering some ideas on what our Congress could do to fix it.