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  • Social Security: Declining Fertility Rate Threatens Finances

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    Newscom

    The Centers for Disease Control (CDC) recently released its 2012 data on births, indicating detrimental trends that could cast yet another blow to the already daunting fiscal future of Social Security.

    The year 2012 marked the fifth straight year of declining fertility rates in the United States. From 2007 to 2012, the total fertility rate fell more than 10 percent: from 2.12 children per woman in 2007 to 1.88 in 2012. This decline in fertility means fewer workers, lower output, and fewer taxpayers to support the federal government’s ever-growing spending and debt, including future Social Security and Medicare benefits for current workers.

    Nonetheless, the Social Security actuaries have not adjusted their fertility rate assumptions since 2006, when they increased those assumptions to a rate of 2.0 births per woman. Based on this adjustment, lowering the rate to 1.9 births could add nearly $400 billion to Social Security’s already massive $12.3 trillion 75-year actuarial deficit.

    Over 75 years, $400 billion may not sound like much, especially when the federal government currently spends that much in 40 days, but when borne by future workers who will already be supporting more retirees than ever before, it will be a heavy burden. With Social Security’s trust fund projected to be exhausted by 2033, paying out promised benefits would require workers in 2034 and beyond to pay significantly higher taxes that would only be exacerbated by the effect of low or declining fertility rates.

    While the economic literature shows recessions can have a negative impact on fertility rates, such impacts are typically small (a decline in fertility rates of a few percentage points) and short-lived (lasting one to two years after the recession). The recent decline in fertility is both larger and longer-lasting than the recession alone would imply. The federal government’s response to the recession—increasing spending and deficits contributing to greater economic uncertainty—has likely made it difficult for many families to have more children.

    Low fertility rates have contributed to the economic and fiscal deterioration of countries such as Japan, Italy, and Spain. Likewise, continued low or declining fertility rates will exacerbate the U.S.’s already bleak fiscal outlook. To reduce uncertainty and allow for more rapid economic growth, Congress should act immediately to reduce government spending, reform unaffordable entitlements, and curb the massive and growing U.S. debt. The Heritage Foundation’s Saving the American Dream lays out a plan to do just that.

    Posted in Culture, Front Page [slideshow_deploy]

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