Policies to encourage large families
Let me begin with a generalization: No government of a country whose birth rate has fallen significantly below replacement has ever succeeded in once again achieving replacement rate fertility. Once the birth rate falls to what the U.N. Population Division calls ‘low-low fertility’, no combination of government policies and subsidies appears sufficient to re-boost the birth rate.
Viewing this problem, most observers simply conclude that the policies are simply not robust enough, or the subsidies not large enough, to alter fertility behaviour. I believe that their position, however reasonable it sounds, is fundamentally wrong-headed. For a close examination of these policies and subsidies reveals that they are, in their effect on fertility, self-limiting and even self-defeating. That is to say, they create unintended anti-natal incentives that in large offset their ostensible pro-natal purpose. It is also true that the socialist welfare state, with its extremely high tax rate and its usurpation of many family functions, relentlessly drives down fertility. In this sense the government itself is the problem.
Costs and Benefits
We are accustomed to thinking of abortion and, to a certain extent, sterilization and contraception, as exclusively moral issues (although most of us are familiar with the efforts of the radical feminists to frame them as ‘reproductive rights’ issues). But abortion can also be viewed as the wanton destruction of incredible amounts of human capital–in the U.S. case of 1.1 million abortions each year it is roughly equivalent to the nuclear destruction of a mid-sized American city each year. Government-funded contraception and sterilization programs—holdovers from the days of the population bomb scares–also deliberately suppress the birth rate, and may be said to prevent the formation of human capital. The U.S. pension program, called Social Security, completely ignores the vital contribution of human capital that parents make to the system, and so undermines their willingness to create that capital, that is, to conceive, bear and raise children.
Most parents in developed countries see babies as a drain on the family economy. It would be surprising if they didn’t. For parents make tremendous investments of time and money in each of their children, only to watch them open separate bank and checking accounts as soon as they become gainfully employed. Adult children in developed countries contribute precious little to the financial well being of their parents. The Department of Agriculture estimates the cost of raising a child born in 2005 at around $200,000 over twenty years, a substantial, albeit somewhat exaggerated, sum of money.
Yet the family’s loss is society’s gain, for these same children constitute the human capital that the larger society draws upon for its very life. The economy continues to flourish–and government medical and pension programs continue to operate–only because millions of parents generously sacrifice their own well being by providing for the future in the most fundamental way, by providing for the next generation of Poles, or Americans. How much human capital do parents create when they conceive, bear, and raise a child? What is the economic value of a baby at conception? I have not done the calculations for Poland, but the future earnings of the child from 2025 to 2070—assuming that wages continue to rise at their current rate—will be probably in the neighbourhood of $4 and $5 million. Discounting the future costs and benefits to the present produces a figure of around $600,000.
How many people realize that every conception is the beginning of a small fortune?
Because the costs are borne by the family, and the benefits are reaped by the larger society, the birth rate continues to fall in many countries, with calamitous consequences over the long term.
In response, many European countries have long had policies and programs in place that are intended to raise the birth rate by offsetting some of the costs and consequences of childbearing. In Germany the new ‘Elterngeld’, or parent money program allows an adult who stops work after a child is born to continue to claim two-thirds of their net wage, up to a maximum of $2,375 per month. Low earners can claim 100% compensation for lost wages. In an obvious bow to feminist sensibilities, if both parents take a turn, they can claim the benefit for a total of 14 months. These benefits mark a substantial increase over Germany’s previous scheme: a flat $400 a month for low income families for up to two years. But it is likely to have little more impact than its predecessor on the anaemic German birth rate. Why?
The policies, in Europe and elsewhere, customarily take the following shape:
A one-time bonus: the government provides parents with a fixed sum of money, as in Russia, where each family receives a bonus of $9,600 following the birth of a second child and any subsequent children.
A parental leave program, allowing parents to stop work after a child is born, as in Sweden where either the mother (or the father) can take 480 days of parental leave with guaranteed reemployment.
A government subsidy for a set period of time, often pegged to the parental leave program, as in Sweden, where the mother can receive 80% of her salary during the period of leave.
Government-run day care centres that take babies to preschool-aged children, as in France and Sweden.
Small monthly subsidies for dependent children, called ‘Kindergeld’ in German-speaking countries.
None of these policies, either singly or in combination, have succeeded in recovering the birth rate to replacement. Why?
First, these policies ignore the dynamics of the natural family, consisting of a father, a mother, and their natural and adopted children in favour of gender- and marriage-neutral policies. The German program, by tempting fathers to leave the work force for long periods of time, damages their career prospects, and the long-term financial costs to the family will not be negligible. Fathers work harder the more children they have; this phenomenon should be encouraged, not discouraged. As Pope John Paul the Great remarked, “Work was made for man, not man for work.”
Second, these policies are overly egalitarian. These policies seek to encourage all couples to have one more child. But given that couples vary widely in their fertility desires, the focus should properly be on allowing couples to achieve their own desired number of children. Those couples who, for reasons of religious conviction or personal fulfilment, desire to have larger than average families, should be encouraged, since they are providing for the future in the most fundamental way, by providing the future generation.
Third, these policies fail to address the principal financial stress on the family, namely, that which results from high tax rates. While America taxes away roughly one-third of the earnings of its citizens, European governments consume one-half. By reducing the disposable income of young couples, this has a tremendous and negative impact on fertility.
Fourth, these government subsidies are an inefficient use of tax dollars. Studies in the U.S. have shown that the government is a very inefficient consumer, only able to recover 30 cents of value from every dollar it spends. That is why, for example, in the U.S., we have privatised waste disposal services and, in some states, prisons. Taking 50 percent of the earnings of couples with children and then giving them back government subsidies is not only inefficient, it discourages the sense of individual responsibility and initiative that is necessary for strong families and robust fertility.
The modern socialist welfare state—by providing abortion on demand, state-funded contraception and sterilization, by fracturing the intergenerational dependency of the family, by adopting ‘gender-neutral’ policies that undermine the complementarity that is at the heart of successful marriage—relentlessly suppresses fertility. Yet, as my late friend Julian Simon was fond of remarking, human beings are the ultimate resource, the one resource that we cannot do without. We cannot continue to consume more of this resource than we produce. Otherwise, not only pension funds, but entire economies, will collapse, first in Europe, then in Canada and Japan, and finally in the U.S. as well.
The solution must come from outside of government. We have done that in the U.S. to some degree, so it is to the U.S. experience that I shall next turn.
The U.S. Approach
In the U.S., we have taken a fundamentally different approach. Instead of looking to government subsidies to solve the birth dearth, we have instead sought to shelter young couples from government taxes altogether. The effect of this has been to raise the disposable income of couples with children, especially those in the lower tax brackets, by 20 percent or so, during their childbearing and raising years. As a consequence, the U.S. birth rate is now at replacement.
How did this come about? Following the election of 1994, the Republicans, committed to a platform of lower taxes, took control of the U.S. Congress. Among the measures that they passed were two that had a direct impact on American birth rates:
First, what we call the ‘income tax deduction for dependents’ was increased for the first time since 1948. From $600 per dependent this was slated to gradually increase to its current $4650 per dependent. A family of four thus pays no income tax on its first roughly $20,000 of income.
Second, an ‘income tax credit for dependents’ for dependent children was introduced. For each dependent child 16 or under, the family receives a tax credit of $1,000. A family with three children, for example, can claim a tax credit of $3,000 against its income tax. If their total tax is less than this amount, they receive a rebate from the government.
These two measures taken together mean that many young couples of modest income pay significantly less in taxes. Able to keep and spend more of their income, they are also more open to new life. As I say, the birth rate has, over the past decade, risen to replacement for all Americans.
Of course, it would be better if the birth rate were higher still. The U.S. system does not go far enough, since couples with children are not sheltered from all taxes, merely from part of the income tax. They are still obligated to pay the same level of social security taxes as their childless neighbours.
I have already remarked that the cost of raising children falls solely upon the parents, while the benefits of their investment are spread over all of society. Nowhere is this more true than in the case of Social Security. Not only do parents bear the burden of raising children, they also pay the same Social Security payroll taxes—6.2% of the first 87K of income for Social Security, and 1.45% of income for Medicare–as non-parents. It seems inequitable to make married parents with children under 18 to pay these taxes at all, since they are already helping to ensure the future of Social Security by investing heavily in future taxpayers, namely, their own children. If we want to encourage couples to create human capital, then this ‘Parent Penalty’ must be ended.
Philip Longman has proposed that couples with children under the age of 18 should be sheltered from Social Security and Medicare taxes. Those with one child should have their taxes reduced by one-third, those with two children by two-thirds, and that those with three children should pay no taxes whatsoever. At retirement, he says, such parents should have their benefits calculated as if they had paid the maximum amount into the system. Re-linking the generations in this way would undoubtedly boost the birth rate, and thus help to salvage Social Security. Whether we adopt Longman’s proposal, or some even more generous arrangement, both justice and prudence demand that we stop the double taxation of parents as soon as possible.
The goal of the Population Research Institute and like-minded organizations in the U.S. is to shelter middle-class couples with three or more minor children from both the income and the social security tax. Sheltered from these federal taxes, family income would increase to the point where more mothers would be financially able to stay home and care for their children. Some would undoubtedly choose to do so, since U.S. surveys show that many women who work would rather be home with their children. Young women express a desire for 2.5 children or so, significantly above the 2.1 that women of reproductive age currently average. Allowing women to act on their fertility preferences would further increase fertility, thus creating more vital and irreplaceable human capital.
If such a policy were adopted in Europe, the effect would be even more striking. Eliminating the taxes on income would double the effective income of the fathers of families with three or more children.
Opposition to Pro-Natal Policies
I do not want to underestimate the political difficulties that my proposal faces in the U.S.
Our national debate on social security should provide a perfect opening for such pro-natal policies to be enacted. Raising the birth rate is the obvious way to keep our pension fund solvent. Yet neither political party seems able—perhaps willing is a better word–to come to grips with the real issue, which is our growing shortage of young people. The Democrats—no surprise here—merely want to raise taxes, just as Jimmy Carter did during a previous Social Security cash crunch in the late seventies. Carter promised that his tax increase—the largest in American history up to that point—would keep the trust fund solvent for another quarter century. Seven years later it was technically bankrupt.
The Republicans have a grab bag of solutions on the table—from raising the amount of income subject to taxation, to lowering the rate at which benefits increase, to setting up private investment accounts for younger workers—none of which addresses the underlying problem either. The party of half-measures seems determined to earn its ‘Democrat-lite’ sobriquet yet again.
There is a story told in Washington about how best to jumpstart a stagnant economy. The Democrats, true to form, propose a giant public works project. “Let us raze Washington to the ground,” they say, “We’ll rebuild it over the course of the next year. Think of all the jobs we will create.”
“No! No! No!” cry the Republicans in apparent horror. “We can’t do that.” Then, after a pause, they add sotto voce: “Perhaps … we could phase it in over three years?”
The politicians of both parties are in the money game: They like to give away the people’s money. It seems to belong to no one. And it makes people so happy when they get it.
Any policy that seeks to strengthen the family and raise the birth rate will receive only lukewarm support from even centre-right politicians. It is hard for those inside the government–who are accustomed to proposing and providing government solutions to problems–to understand that, where matters of fertility are concerned, the government is the problem.
Moreover, pro-family, pro-natal policies will face strenuous objections from three overlapping groups: Radical environmentalists, population controllers and radical feminists.
According to radical environmentalists, the biggest threat to the earth isn’t CO2 emissions or climate change–it’s children. A new paper by Optimum Population Trust (OPT) contends that kids are “bad for the planet” and if couples had one less child, they could “cut their family’s carbon dioxide output by the equivalent of 620 [cross-Atlantic flights].” Rather than follow their own dreams of having a family, John Guillebaud, co-chairman of OPT, said that potential parents should first consider the environmental consequences. Another eco-militant, Paul Watson, founder of the Sea Shepherd Conservation Society, is calling for a green genocide. In a May 4 editorial, Watson says mankind “is acting like a virus” and appeals for the world to decrease its population by more than five billion. In the past, Watson has come under fire for claiming that humans are “the AIDS of the earth.” Rhetoric like this, fuelled by profound pessimism about human possibility, is driving demographic collapse in much of the West, where sub-replacement level fertility is on a collision course with pension liabilities, especially in Europe. Even Al Gore, who this weekend spoke to the American Institute of Architects, resorted to calling the alleged bio-threat a “spiritual crisis.” In this he is half-right as the key to this eco-pessimism is despair. The ‘green’ campaign, elevated to a fever pitch by Gore and others who advocate a stronger hand for government, is paving the way for the dire messages of organizations like OPT and Sea Shepherd. I have to ask, if we take their advice and quit having children, just who exactly would we be saving the earth for?
It’s a free world, however, and I believe that these groups should be allowed to act on their impulses. If they want to condemn themselves to extinction, so be it. But we shouldn’t allow them to take the rest of us with them.
The radical feminists, however, have a more radical project in mind than simply reducing our numbers: They want to completely re-fashion human society into a gender-neutral collection of individuals. They want to re-define the family so broadly that, for all intents and purposes, it ceases to exist as a functional social unit.
As they are open about their purposes, we must be open about ours. We must seek to protect young couples, those who are traditional minded by choice, from the encroachments of the leviathan state. For they are our future.
Dr Steven W. Mosher
Dr Mosher is the President of the Population Research Institute located in Front Royal, Virginia, and is the author of the forthcoming Population Control: Real Costs and Illusory Benefits (Transaction Press, September, 2007). These remarks to the World Congress of Families IV Warsaw, Poland, May 2007 are reprinted with permission.