A Radical Solution for the Social Security Crisis: Have More Babies!

A Radical Solution for the Social Security Crisis: Have More Babies!The long-term Social Security crisis may be taking a backseat to more immediate concerns like jobs, the economy and health care reform in the buildup to the 2012 presidential election. But it's still a pressing problem the occupant of the White House in 2013 should really begin to deal with.

As it stands, the debate surrounding how to keep Social Security afloat takes two sides: On one side you have those who want to raise taxes, and on the other you have those who want to cut benefits (either by reducing individuals' payouts or by postponing the retirement age).

Neither is an attractive option.

But there is one little-mentioned solution that could fix Social Security without ruffling anyone's feathers. And it's one the next president should seriously consider.

Make more little taxpayers.

Fostering the Taxpayers of Tomorrow

Economist Bryan Caplan expounds on this idea in his book Selfish Reasons to Have More Kids. "Big families have subsidized retirement since the dawn of government retirement programs," he notes.

The problem today that is even as we're living longer, creating an ever growing pool of retirees, large families are dwindling. In 1940, 42 workers' payroll taxes supported each retiree. Today, it's only 3.3. By 2050, the ratio will be just 2 workers to 1 retiree.

This number will likely continue to get even smaller. After all, the average number of children per family in America (among families with children) is 1.86.

But if we can change this trend with a higher birth rate, Social Security can be fixed with minimal adjustments to tax rates and benefits.

Making a Tough Sell More Palatable

Obviously, the most difficult part of this equation is convincing Americans as a group to have more babies. With the economy still recovering, unemployment numbers still high, and the likeliness of the inflation rate rising in the coming years, it's a valid concern. Kids cost a bundle, and people may have fewer if they fear being able to support them.

But Caplan explained to me that couples would be influenced (especially today) with a one-time tax credit for each child they give birth to. He tossed out the figure of $30,000 per child as an amount that could make couples seriously reconsider becoming parents or having additional children.



The Math Behind Bringing Up Baby

And as outlandishly high as that number seems, it actually makes sense for the government to take the short-term hit in tax revenue for the long-term benefit to the economy.

That's because of what's called the "fiscal externality" of each new U.S. citizen.

This represents "the present discounted value of the marginal cost of all the government services the baby will ever consume, minus the present discounted value of all the taxes a baby will ever pay," according to a 2011 essay Caplan wrote for The Cato Institute.

In simpler terms, the fiscal externality is the value of the money the government will collect from a citizen over his lifetime, minus the amount the government will spend on that citizen.

In 2009, economists calculated that the fiscal externality of a new baby was $83,000 -- clearly showing that, even with a tax credit of $30,000 per child, using tax breaks to encourage people to have more kids is an economically responsible tactic.

Similar incentives have worked in other countries that have tried to boost their fertility rate. So it's safe to assume it would work in America as well.

And, perhaps most important, it's a bipartisan solution, both lowering taxes and strengthening the government's fiscal health, according to Caplan -- meaning that having more babies may represent the easiest solution to prevent Social Security's impending demise.

This article was written by Motley Fool analyst Adam J. Wiederman. Click here to read Adam's report detailing one tactic to boost your Social Security payment by as much as 76%.

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

TurboTax Articles

Depreciation of Business Assets

In an effort to stimulate the economy by encouraging businesses to buy new assets, Congress approved special depreciation and expensing rules for property acquired in 2014. However, beginning in 2015, we are back to the old depreciation rules.

Tax Deduction Wisdom - Should You Itemize?

Learn whether itemizing your deductions makes sense, or if you should simply take the no-questions-asked standard deduction. The standard deduction is always easier, but for one out of every four taxpayers, itemizing pays off with a lower tax bill. Browse this quick tax deduction overview to avoid paying more taxes than you actually owe.

Tax Breaks and Home Ownership

Home ownership brings with it not only many trips to home improvement stores, but also a slew of tax breaks. It's up to you to take full advantage of the write-offs available to you. Here's what you can and can't deduct.

When to Use Tax Form 1099-C for Cancellation of Debt

In most situations, if you receive a Form 1099-C from a lender after negotiating a debt cancellation with them, you'll have to report the amount on that form to the Internal Revenue Service as taxable income. Certain exceptions do apply.

What is IRS Form 8917?

If you, your spouse or dependents attended post-secondary school, you may be able to deduct a portion of the tuition and fees by reporting it on IRS Form 8717.

Add a Comment

*0 / 3000 Character Maximum

154 Comments

Filter by:
RedScourge

Currently, each member of the workforce has had $133,000 in local, state, and federal debts saddled onto their backs. Now you want to add another $30,000 ontop of that. Brilliant! Let's make you treasury secretary!

October 02 2012 at 5:01 PM Report abuse rate up rate down Reply
RedScourge

How friggin irresponsible is this suggestion? The current system exists by throwing debt onto the unborn, and our current problem is we are running out of enough money to be able to support ourselves, and your solution is to have more babies that we can't afford to have, and bring them into a world in which they're indebted upon their birth? No friggin way!

October 02 2012 at 4:59 PM Report abuse rate up rate down Reply
Ted Langs

Don't worry about social Security just fix this countries ability to manufacture our own goods. Make it competitive even if you have to subsidize it. Putting people back to work would solve some of the problems. Place a tariff on goods coming into the country especially from those U.S Corporation that have left this country for lower paid labor in other countries.
You can't do that? Why not? They are no longer a U.S Corporation but a international rag tag company. They owe American labor and this country for their success and now it is payback time. Or would they rather we stop buying their goods?

September 22 2012 at 3:08 PM Report abuse rate up rate down Reply
Ted Langs

Don't worry about social Security just fix this countries ability to manufacture our own goods. Make it competitive even if you have to subsidize it. Putting people back to work would solve some of the problems. Place a tariff on goods coming into the country especially from those U.S Corporation that have left this country for lower paid labor in other countries.
You can't do that? Why not? They are no longer a U.S Corporation but a international rag tag company. They owe American labor and this country for their success and now it is payback time. Or would they rather we stop buying their goods?

September 22 2012 at 1:15 PM Report abuse rate up rate down Reply
locke9949

I see they didnt mention CHINA, they will be bringing in tons of junk in the new and bigger Texas bayport docks

September 21 2012 at 5:18 PM Report abuse rate up rate down Reply
Paul and Matilda

Actually.....FAIRTAX will bail out Social Security....Why is Washington not talking about it??? Check it out.....everybody contributes.....fairtax.org

September 21 2012 at 5:08 PM Report abuse rate up rate down Reply
yuccapucka

Just figure out how to make all those robots who are replacing workers pay social security taxes. These robots won't retire, and so they'd leave a surplus of money for the human beings. If you just want more people in the United States, all you'd need to do is empty half of India and China into our country. China alone has 100 million unemployed young people who wouldn't mind working here. Perhaps taxing our robots is the better idea.

September 21 2012 at 4:58 PM Report abuse rate up rate down Reply
jackkohler

A fool, most definitely.

September 21 2012 at 4:54 PM Report abuse rate up rate down Reply
geez2463

OMG your friggin nutts!

September 21 2012 at 4:14 PM Report abuse rate up rate down Reply
geez2463

OMG your friggin nutts!

September 21 2012 at 4:14 PM Report abuse rate up rate down Reply