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Jim Capretta is one of the best health care analysts and thinkers of our generation. Today, he has an article on one of the most important topics of our day that no one talks about: fertility's role in the entitlement programs that sit at the heart of our fiscal crisis.
With so much discussion and political debate in recent years, one might think that every possible diagnosis of and remedy for Social Security's long-term financial challenges has been offered and debated. Yet there has been very little mention of the central issue in financing Social Security—namely, the long-term fertility rate. Indeed, if the U.S. fertility rate were expected to return to the levels seen in the 1950s and through the mid-1960s, the subject of Social Security reform would likely never come up at all. With higher birthrates, there would be no financing crisis, as the projected workforce in the decades ahead could support the growing numbers of elderly Americans. With no financing shortfall, politicians would gladly leave the program alone (emphasis added).
Anyone following the policy debates of late knows that Medicare, not Social Security, poses the greatest threat to our long-term fiscal health. It's common for legislators to make the observation that "Social Security is easy to fix" compared to Medicare. But Capretta's article shows that we could be in for a dramatic spike in Social Security's overall liability to U.S. taxpayers.
With relatively low fertility and rising longevity, the gap between Social Security revenue and spending is about to become very wide, and stay that way indefinitely...Social Security income (payroll taxes plus some taxes collected on benefit payments) will hover just below 5 percent of the GDP over the coming years. Today, Social Security spending is at a comparable level, but as the Baby Boomers retire, spending will soar and never fall back again to its prior level. The 2010 Social Security Trustees' report projects the excess of Social Security spending over income will reach about 1 percent of GDP and then stay there for most of the coming century. It is inconceivable that the nation could afford to run to such a large permanent deficit in Social Security (emphasis added).
Capretta doesn't cite it, but another disquieting trend in America is the declining work participation rates among men and growing out-of-wedlock childbearing in the middle class, both of which put a downward pressure on wages for a growing part of the population. Essentially, what this means is that we have a growing portion of the working age population that is contributing less to our programs providing income and health security to older Americans.
It's customary for us to say that America is not Europe, that we are somehow different and less dependent on the state. But the trends show us tracking with Europe in a fairly disturbing way. This chart, which shows the change in old age dependecy, pretty much makes that point.
Read the entire article here.