Thursday, May 31, 2012

How Social Security Depends on - and Penalizes - Childrearing

Ramesh Ponnuru has a good essay in National Review Online today on the ways in which social security both depends on the childrearing contribution to the system that parents make - a contribution-in-kind or tax-equivalent - and penalizes it.  He makes points similar to those I made in an article in Social Work in 1990 (Paul Adams, "Children as Contributions in Kind: Social Security and Family Policy," Social Work 35(6) (November 1990), pp. 492-97), but with updated research and some account of the effect of "family-friendly" policies.  The latter are supposed to make it easier to harmonize work and family, but as Neil Gilbert argues in his book, A Mother's Work: How Feminism, the Market, and Policy Shape Family Life, both "family-friendly" and "gender-neutralizing" policies adopt an approach of harmonizing by subordinating family to work.  (See my discussion on my blog about Sowell, Sandel, and Neil Gilbert for March 13, 2010.) 

Ponnuru says that prior to social insurance,  people depended on their children, both for labor and especially for security in old age.  A man's children were his social security.
They  needed children, especially, to avoid hunger and privation in old age. The bargain was simple: Parents take care of their children until they are able-bodied, and in return get taken care of by their children when they no longer are.
We still need to have children so that we can enjoy a secure old age. Modern societies have disguised the old bargain by socializing it. They maintain expensive government programs to assist the elderly, financed by successive generations. The children still take care of the elderly when they grow up, but now it’s all the children providing for all the elderly, collectively. 
In some ways this arrangement may represent an advance for civilization. Most people seem to think so. But it has a little-appreciated drawback: It imposes a heavy, if hidden, burden on parents, especially those with several children, and societies that adopt it therefore tend to have fewer children. For both moral and practical reasons, it is time to revise the generational bargain again.
We still depend, collectively, on the children we rear to productive adulthood for our security in old age or disability.  But we no longer depend on a culture of filial piety, sense of duty, or gratitude.  Instead the rather more reliable Federal payroll tax system ensures that the intergenerational transfer is made.  

Now, as individuals we no longer need to have children, with all the attendant costs of childrearing, in order to provide for our old age.  We just need others to do so.

The social security system depends on the contribution in kind made by parents in the form of childrearing, but it gives non-parents a free ride and penalizes parents.  As a parent, you pay the same earnings-related tax as non-parents and on top of that you pay a tax-equivalent in the form of childrearing.  Not only is that contribution not recognized but it is penalized in the form of reduced earnings over a lifetime and hence lower earnings-related social security benefits.

Social security thus suppresses fertility - not that it is the only factor in the birth dearth now afflicting half the countries in the world - and so creates its own fiscal woes.  The ratio of workers/contributors to beneficiaries declines dramatically.  The working age population always maintained those too old or sick or disabled to work, but now we have ever more of the latter and proportionately fewer of the former.

One kind of solution briefly discussed by Ponnuru is to re-establish the direct link for individuals between fertility behavior (as demographers call it) in young adulthood and security in old age or disability.  One way to do this - well short of abolishing social insurance - is to increase the tax credit substantially to offset the contribution in kind that parents make to the system.

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