Almost two years ago, Daniel Patrick Moynihan did the nation a great service by making Social Security safely controversial. Acknowledging the approaching problem of the huge baby boom retirement that will have to be supported by the smaller baby bust generation, Moynihan’s plan would have eliminated the trust fund created by the 1983 Social Security Reform Act and put the system back on a pay-as-you-go basis. His primary reason for this move seemed to be to force Congress and the Bush administration into raising taxes to reduce the federal deficit instead of relying on surplus moneys from the Social Security Trust Fund.
The 1983 reform seemed to change the way Social Security was funded, from a pay-as-you-go system to one that allowed workers to contribute to their own retirement via the trust system. In point of fact, the system never changed at all. Since there is no obvious way for the government to “save” money, the system remains on a pay-as-you-go basis. Even Robert Myers, former deputy commissioner of the Social Security Administration and executive director of the National Commission on Social Security Reform, which in 1982-83 proposed the changes in Social Security financing, now endorses the Moynihan Plan. Myers says that the plan is “fiscally and economically sound, as well as intellectually honest in giving the public a clear view of the cost of the program and of the general budget situation.”
Today’s retirees did not “save” for their retirement by contributing to the Social Security system. The notion, widely held, is pure myth. Their contributions paid for their parents and grandparents. Looked at from a strictly actuarial point of view, they supported a small retirement population and paid very little in taxes. Today there is a large working population to support them and they are receiving back many more times what they paid in. Social Security has been a financial windfall for today’s elderly.
But as David P. Fauri, a professor of social policy at Virginia Commonwealth University, puts it, actuarial equality was never the goal-of Social Security; instead, it was intended to be a “social insurance” program that combined some of the features of a private pension with the government’s ability to redistribute wealth. Given that absolute financial equity is not the goal of Social Security, today’s elderly could be considered to have paid their dues in another way. They contributed to Social Security in the only way that truly insures future benefits (besides maintaining a strong economy)—they had children.
But it should also be pointed out that they had the government’s cooperation in this—in the form of low interest rates for housing, the GI Bill for education, and an income tax exemption that allowed many to exempt all federal income taxes. Furthermore, other taxes—such as Social Security, state, and local—were low as well. Young people today are either not able (or maybe not willing) to raise large families. Where once a family, even a large family, could be middle class on one income, today it takes two. And with many more women now working, Social Security benefits have risen dramatically as even more money has been absorbed into the system. What was once supposed to be only a floor to prevent absolute poverty has become a major pension system.
What the Social Security system of the future is going to need, more than any other kind of contribution, is more workers to support today’s workers when they retire. These additional workers will also be needed to keep the economy going. Already we are hearing calls from Washington to allow more generous immigration to solve this problem, but immigration brings its own problems. Since, for example, the success of the Social Security system depends on the willingness of young workers to pay for their parents’ and grandparents’ retirement, immigrants may be unwilling to pay high taxes to support others’ parents. Thus an immigrant population large enough to help with the baby boom and bust problem might be more resistant to transgenerational support.
What is needed is a new baby boom, though many will oppose this idea. Feminists will argue that such a solution puts an unequal burden on women. Some environmentalists will be appalled at the temerity of a suggestion which runs counter to the orthodoxy that smaller is better. An April 19, 1991, story in the Wall Street Journal shows just how anti-child America has become. The story concerned a thriving Mormon family with 17 children. The mother of the family explains her desire for a large family by citing her church’s belief that children bring joy. Irate letters to the editor followed. One writer added the cost of lost taxes, $9,758 from $34,850 worth of exemptions for the children, and complained about subsidizing this woman’s joy. He also recommended a limit on deductions for “luxury families” and worried about the effect of such families on a stable population. Another writer suggested that if this couple had wanted such a large family they should have had two natural children and adopted 15. The only positive letter was equally telling, as Jessica R. Jacob, M.D., thanked the Journal for printing a story that paints large families in a good light. She added that she and her husband “are subject to daily expressions of disbelief at what many of our colleagues and acquaintances perceive as an excessive number of children.” Dr. Jacob and her husband have six children.
But neither the original article nor any of the letters points out the tremendous contributions these children will likely make to society, including the taxes they will pay over a lifetime. In fact, the older children in large families no doubt pay much more in taxes than their parents are “collecting” in exemptions.
Realists will suggest that women will not go back to having large families when they have tasted the liberation of small families, and they may be correct. However, there are some trends that suggest otherwise. Most women who can afford to do so are choosing to stay at home with their children, at least when the children are young; and some actually enjoy doing so. Women today speak of staying at home with their children as a “luxury.” Perhaps if more people could afford this luxury, more children would be born. Indeed, a national poll in 1987 showed a surprising 88 percent of women claiming that if they could afford to do so, they would prefer to stay home with their children.
One of the wonderful things about Social Security, if you listen to those who praise it, is that it frees the indigent aged from dependence on their own children. Another way of saying this is that it socializes the care of the elderly. But socialism is an inefficient system with gross disincentives built into it. The more you separate those who benefit from those who pay, the more beneficiaries you will have and the fewer payers. The economic maxim runs thus: the more you tax something the less you have of it, and the more you subsidize something the more you will get of that commodity.
The key to saving the Social Security system is to take advantage of this maxim and put it to work to benefit the system. Providing for future generations is not simply altruistic, it is necessary for the continuation of life in a civilized state. To employ Thomas Hobbes’ felicitous phrase, without such a provision (among others) life becomes “solitary, poor, nasty, brutish, and short.” Thus the older generation must provide for the existence and education of a younger generation that will ensure the survival of the society. Current efforts toward socializing this responsibility have resulted in many people choosing the option of letting others provide the children who will become the next generation. But, unfortunately, there simply are not enough “others,” and what “others” there are are staggering under the heavy burden of a tax system that has shifted much more of the tax burden onto their already burdened shoulders. One of the incentives that people traditionally had for raising families was to provide for their own care when they grew too old to care for themselves. With Social Security, that incentive disappears. The country needs new pronatalist policies and incentives to raise responsible children. But what kind of incentives?
What I propose is to recognize parenthood for what it is, the most significant contribution to the Social Security system that a person can make, and to increase the financial benefits to parents as part of that recognition.
My first suggestion has already been proposed by Allan Carlson and endorsed by Cary Bauer, chairman of the Family Research Council. This is to return the income tax dependent exemption to its former value. Instead of the current $2,150 the exemption would need to be $8,260 to be worth what it was when it was originally instituted. The second suggestion is a new one. Upon employment, workers could designate a certain percentage of their Social Security payments to be assigned directly to a retired parent, grandparent, or guardian as a supplement to that person’s retirement income; a kind of child bonus, if you will. Those workers who have spouses who are out of the workforce because they must care for small children or handicapped dependents could be allowed a second supplement that would go to a retired parent, grandparent, or guardian of the spouse. Additional refinements in the law would no doubt be needed, but essentially that is the proposal. Another possibility would be to reduce the primary income-earner’s Social Security taxes by some percentage for each minor dependent. If the employer’s share were also reduced by a comparable percentage, then an employer might view a family man or woman as a person who could be hired at a lower cost instead of as a person likely to have more distractions because they have children. This would be a particularly useful advantage for single parents. Other variations to reward parents could be considered instead of or in addition to these, such as allowing parents to retire earlier than nonparents.
There are several advantages associated with these schemes. First, the benefits will go to those who raise the children; of course, in order to benefit, recipients must raise children. Second, the United States will benefit economically and spiritually and educationally if our society is reoriented to the idea that children constitute a positive good. And finally, a clear connection between having children and receiving Social Security benefits would thereby be established. After all, if nobody has children, there will be no Social Security for anyone. Social Security is an intergenerational contract that seeks to take the place of the family as a means of providing security in old age. It equalizes parents and nonparents. But as has already been pointed out, this form of socialism, as every other, has its weakness, and the weakness comes when the burden on those who contribute most becomes too high and they cease contributing. This is what has happened today. There are people who would like to have more children, but the burdens have become too great and the rewards too few. (If this assumption is wrong, that there is no willingness to increase the birthrate, then this proposal as an attempt to increase fertility will fail, but the basic justice of it will remain.)
It is not expected or desired that people who do not want children will have them for financial reasons. The incentives should be large enough to help support a large family, but not so large as to try to serve as a temptation to people to breed for purely economic purposes. With this caveat in mind, is it fair to reward people for having children? Yes, for several reasons. First, as I have previously said, new workers are needed to support the economy and the dependent population, particularly the elderly. If children become workers, they are the essential contributors to their parents’ retirement. Secondly, parents spend a great deal of money raising children. Current estimates exceed one hundred’ thousand dollars for raising a child to age 18. Third, parents are not usually able to save and invest very much for their retirement until children are grown, and therefore they are not in a position to accumulate as much for their retirement as childless couples. These provisions would compensate parents for the tremendous costs they incur and also, as a part of the law of the nation, tell a story to ourselves about what we as a community value.
There is one other objection to the above proposal that needs to be anticipated and answered. If Social Security is an intergenerational compact based on the myth that society has children and not families, why not eliminate it altogether and privatize retirement? Families would be strengthened, people would save for their own retirement, and unused retirement savings could be passed on to the next generation. The generations would become less isolated from each other. However, anyone observing recent events is compelled to conclude that Social Security seems to enjoy such powerful political support so as to render such a course impractical to follow. Yet modifying Social Security to make it sounder and more equitable may be politically palatable. In a recent nationwide poll of 519 adults (margin of error 4 percent, 95 times out of 100) conducted by Marketwise, Inc., of Charlotte, North Carolina, 90 percent of those surveyed disagreed with a statement that changes in Social Security must never be considered, although 88 percent wanted current retirees fully protected so that changes would not adversely affect those already drawing benefits.
Representative John Porter, also responding to the Moynihan challenge, has proposed the following change in Social Security financing along these lines: excess Social Security funds, meaning those remaining from workers’ contributions after all benefits are paid, would be remitted to workers for deposit into a kind of IRA that he calls an Individual Social Security Retirement Account, ISSRA. This system could be combined with an effort to privatize Social Security, allowing each worker complete control of his or her ISSRA. This plan is appealing in that it further de-socializes Social Security, but it does nothing to promote childraising since nonparents would still be in a better position to earn more income and thus increase their accounts. Nevertheless, the Porter Plan does hold the promise of certain potential benefits for families, such as the possibility to tap ISSRAs for housing down payments or college tuition.
Several other recommendations to relieve the financial pressures on families were included in the final report of the National Commission on Children. For example, instead of pushing for parity in the value of the dependent exemption, the commission recommended a $1,000 per child tax refund. This money would be available whether or not the parents were employed and paying taxes and would be given regardless of the amount of family income. Its worth to a family in the 15 percent tax bracket would be the equivalent of a $6,666 exemption. The logic behind this recommendation, according to commission member Allan Carlson, is to make it perfectly clear that children are a resource whether their parents are employed or unemployed, rich or poor.
The proposals set forth here, to tie Social Security benefits to workers’ most important nonfinancial contributions, meaning new workers for the system, are offered not to solve the problems of that system alone. Rather, in making recommendations to strengthen Social Security by strengthening the family and promoting larger families, all of the important institutions of society may be strengthened as well. It is hoped that by modifying the Social Security system to make it more just and more pro-natalist, the system can not only be preserved but can serve as a model of how to rethink our country’s family policy in general.
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