Collapsing fertility will unquestionably be the determining factor in almost all important economic and social developments of the next century. Its effects will not be good. Civilization has not experienced such a quiet, insidious calamity since the disintegration of the Roman Empire.
Falling Fertility, Aging and Declining Populations
Population aging and decline in the developed world are now well-established demographic facts. The cause is obvious: there are not enough births to maintain appropriate ratios between the young and the elderly. Maintenance of stable population numbers requires a replacement level fertility of 2.l children per woman. The United States is currently more fortunate than other developed countries; after dipping in 1975 to l.7, the current total fertility rate in the U.S. hovers around 1.99. For Europe as a whole, the total fertility rate is 1.57, with Germany at l.4, Italy at 1.2, and Spain at l.l. Worldwide 83 countries and territories are now below replacement rate, and if “medium variant” fertility assumptions prove true, 56 nations will have negative population growth by 2050. This low fertility, coupled with extended life spans, causes a rapid population aging, followed by a leveling and then a declining population. In some European nations, population decline has already begun. In the United States decline is projected to begin in 40 or 50 years, if United Nations “low variant” projections come about. The below-replacement fertility of the United States is due to numerous factors of modem industrial economies that all tend to reduce fertility, and, unless these factors are reversed, an increase in fertility is extremely unlikely. Among the chief economic factors are:
The great increase in the number of wives who must work in the paid economy to help support the family due to the loss of the “family wage” concept,
The increasing cost of raising children,
High taxation that reduces family disposable income,
Lifestyle changes that increasingly cause luxuries to be considered necessities,
More years spent by young people in higher education. delaying family formation,
Older average marriage ages, which greatly reduce wives’ childbearing years,
Less family support as young couples relocate at a distance from family members.
Future Social Problems
The aging of the population and its eventual possible decline will bring with it economic and social problems of unprecedented proportions. Benefits needed for the elderly would first absorb money for other needs and might ultimately become unfundable.
These problems are too great to be rectified by immigration alone, nor can costs for social security and health benefits for the aged be met by accounting sleight-of-hand or higher taxation. Crushing taxation of the younger working generations to support the elderly would leave them unable to afford enough children to reverse the trend.
Assuming the “medium variant” projection, 6.384 million immigrants would be required between now and 2050 to maintain a constant population. To maintain a constant 15–64 age group, 17.967 million immigrants would be required, and 592.5 million to maintain a constant ratio of the 15–64 age group to those 65 and over during the next five decades.1 Immigration numbers of this size cannot be relied upon to fill the population void caused by low fertility. Many of the nations from which migrants could be expected to come are themselves experiencing rapidly falling fertility.
The only national policy that can mitigate the problem is one that raises fertility. In addressing the problem, several factors are crucial. The first is that, of the many reasons for low fertility, economic ones seem to prevail. Young couples who choose to raise several children are at an immediate and very large financial disadvantage. It is currently estimated by the U.S. Department of Agriculture that, adjusted for inflation, it will cost $236,660 to raise to age 17 a child born today in a medium-income family of four. A family raising four children, allowing for the economies of scale, will have invested over $681,000 plus the lost wages of the mother if she abandons paid work to care for them. This does not include compounded interest on this money, nor costs of higher education.
The impressive records of the overall national economy are relatively meaningless at the family level. For example, a childless couple, each earning $35,000, can live comfortably with a combined income of $70,000. They are able to save money and afford vacations and luxuries. However a similar couple, of which the wife leaves paid work to raise four children, has an income of only $35,000 and far greater expenses for necessities. Unfairly and ironically, it is the children of the second couple who will be taxed in later years to support, not only their own parents, but also the couple who decided not to have children.
Good economic policy and simple fairness require that couples raising children receive meaningful child tax benefits. Tax policy once did this, but to equal the tax benefits that families with children received in 1948, the exemption for each dependent, in combination with tax credits, would today have to have a $12,000 value. Furthermore, the combined employee and employer payroll deductions for Social Security and Medicare is now over 15% of payroll. In 1948, it was 2%.
Slowing Growth with a Aging Population
Numerous economic studies warn that a country with an elderly population, particularly if the overall population is declining, cannot expect the economic growth associated with younger populations. Nor can we expect that some economic juggling can take the place of young workers in the support of an elderly population. The expense, particularly medical costs, of supporting a larger proportion of elderly will increase rapidly, while the proportion of tax-paying workers diminishes. At the same time, the elderly will have an increasing political strength and may well demand increasing benefits.
Vastly greater outlays in medical care and retirement support will be required for increasingly older populations. How much greater this will be depends on future increases in life expectancy and the development of additional life-extending, but costly, medical procedures and drugs.
It is difficult to assess the increase in need for chronic care, but estimates of the number of disabled in the future range from two to four times the current number. As the survival probabilities of those requiring acute care increase, many patients are left with long-term chronic care needs.2 An additional complicating factor is that the percentage of those over 85 living alone with no siblings or children alive will grow because of the decline in fertility during the 1970s and 1980s.3
A falling ratio of the population of working age to that of the retired will increase the tax burden of those in the active work force. In 1950, there were 16 workers to one retired citizen in the United States. By 1960 there were 5 workers, in 1990 it dropped to 3.1, and by 2020 there will be an estimated 2.2 workers for each retired person.4 This ratio will grow worse unless fertility increases and will put intolerable pressure on the Social Security system.
There is much evidence that policies that greatly shielded from taxes families with children in the years following World War II were a pivotal factor in bringing about the “baby boom,” as were family allowances in France during the same period, and later communist pro-natalist policies in Eastern Europe. Steps that should be taken today by the Federal government include:
An increase in the dependent exemption and/or tax credits to a level that would shield median income families with three children from all federal income taxes.
Provision of a meaningful credit against payroll taxes for families with three or more children that increases with each additional child.
Provision of meaningful higher education grants to families with three or more children.
To set an example by the federal government, provision of special subsidies for housing and subsistence to military families with three or more children, which the constant change of duty stations puts at even greater financial disadvantage.
Consideration of tax credits to corporations that provide special benefits to families with three or more children.
It is important that such benefits be tied to the number of children in a family, rather than the socioeconomic status of the family; otherwise the incentive value would be diminished and the programs would become merely a form of welfare payment. Properly structured, such programs would all pay for their costs over the long term, through the maintenance of the future tax base. If such benefits were ineffective in promoting family fertility, there would be only a small increase in lost revenue to the government, since comparatively so few large families currently exist (1.92 million with four or more children, 500,000 with 5 or more and 175,000 with six or more).
The grave consequences of falling fertility have in part escaped public attention because of the great concern during the past decades about “overpopulation.”The reason for extraordinary world population growth during these years has been little understood: clean water and disease eradication that greatly extended life spans and dramatically multiplied the number of generations alive at one time, a phenomenon that has about run its course.5 As economist
Nicholas Eberstadt has said, the population of the undeveloped world mushroomed “not because they were breeding like rabbits, but because they stopped dying like flies.” Global life expectancy at the start of the century, at birth, was about 30 years; by the early 1990s it had risen to 64 years, more than doubling in only nine decades.6
Today, fertility is falling rapidly in almost every nation of the world. Falling fertility, aging and ultimately declining populations are creating future economic problems too great to be rectified by immigration alone. The costs of social security and health benefits for the aged will become staggering burdens for the smaller proportion of young workers. Only increased fertility can resolve the on-coming demographic crisis. Finding the means to make children welcome and affordable must be a priority objective of national policy. Otherwise, the financial difficulties of families raising children will intensify as citizens of working age are increasingly taxed to support the elderly, thus depressing fertility even further in a downward spiral.
The current near-replacement fertility level, a still strong economy, and large budget surpluses projected for a few more years provide the United States with a fleeting window of opportunity to invest in a higher fertility rate before the problems of aging and population decline make such steps unaffordable. It is imperative that families wishing to raise more than two children are provided with the meaningful tax relief necessary to make it economically feasible for them to do so, to secure the future for all.
While the harmful effects of low fertility are slow to make themselves evident, efforts to reverse the trend will also require many years. As the proportion of young in the population declines, any reversal will become increasingly less likely. The time for far-sighted statesmanship is now.
Robert de Marcellus is the president of the Association for Family Finances in America: (AFFA) a non-profit organization dedicated to improving the financial condition of families with children
1 Replacement Migration: Is it A Solution to Declining and Aging Populations?, Population Division, Department of Economic and Social Affairs, United Nations Secretariat. New York: United Nations, 21 March 2000, p. 2.
2 “Coping with Aging,” Special Feature, OECD Economic Surveys 1998–1999: United States. Paris: Organization for Economic Cooperation and Development, 1999, p. 140.
3 Ibid., p. 141.
4 Beyond Rhetoric: A new American Agenda for Children and Families, Final Report of the National Commission on Children. Washington, D.C.: Government Printing Office, 1991, p. 17.
5 S. Jay Olshansky, Statement to the American Association for the Advancement of Science, University of Illinois at Chicago, February 18, 2001. Miami Herald, February 19, 2001, p. 20A.
6 Nicholas Eberstadt, Population, Food, and Income: Global Trends in the 20th Century. Washington, D.C.: Competitive Enterprise Institute, August 1994, p. 10.