Tuesday, May 10, 2005

Death Spiral

Economist's View takes note of a conference around a paper (free) by Michele Boldrin showing that Social Security leads to a reduction in fertility.

Social Security transfers responsibility for retirement security from children to the government. Yet the government needs children to pay into the system to support current retirement benefits, but the government doesn't have children (except "Brave New World"), people do. The paper shows a definite negative correlation between the size of Social Security benefits and fertility. The higher payroll taxes paid by prospective parents also makes it more difficult to afford children. Lower birthrates lead to lower worker to retiree ratios requiring even higher tax rates leading to what David Frum referred to as a "death spiral" on Tucker Carlson's show (4/29).

One way to try to undo the reduced fertility rates without eliminating Social Security would be to have reduced or even negative effective payroll tax rates for parents. Private debit accounts could be created in Social Security to pay for children's health and other expenses (blow up the lock box). Retirement benefits could also be linked to the number of children a retiree has added to the payroll tax system. The government could also explicitly pay much more for children.

Of course, Europe really needs to be experimenting with this now since they are most affected by declining fertility and an aging population.

Children are our future. The greatest investment in our children is having them.


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