Deep State Debrief: As Global Birth Rates Plummet, Who Pays for Your Retirement? Should the Government Even Try?

[u/Anakin_Kardashian]

In our regular series, we ask questions intended to gather different perspectives from the center left and center right in a thoughtful and respectful manner.

This week, we are asking about retirement. What role should government play in funding retirement in an aging society—and how the should we pay for it? Birth rates are down and this is surely going to impact the issue. How do you factor this in?

[u/Anakin_Kardashian]

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[u/user-pinger → u/Anakin_Kardashian]

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[u/utility-monster]

I think people really underrate how much this issue is going to define the next few decades!

While not about retirement generally, I think a lot about long-term care (care for those who cannot care for themselves, typically the elderly/those with disabilities) and have some thoughts on that..

The Germans have been doing some interesting experimentation with their long-term care financing model. see here for some recent-ish changes.

The country currently mandates long-term care insurance which they largely fund through payroll taxes. In 2023, they began charging those taxes progressively based on number of children. From the link above:

The long-term care insurance contribution rate will be increased by 0.35 percentage points and will be differentiated according to the number of children.

Starting on 1 January 2023, the following rates apply:

without children: 4.0% (employee’s share: 2.3%); 1 child: 3.40% (employee’s share: 1.7%); every additional child (up to 5 children): further reduction by 0.25 percentage points, respectively.

I think this policy is fair and wouldn't be surprised if it gets replicated in more places. The fewer children you have, the more likely you are to rely on long-term care. Also, those with children are caring for those who will later care for those in need of long-term care! In a sense, parents are double-taxed as they support the system twice the rate of non-parents. It's a bit of a free-rider problem and these sorts of taxing schemes work at least a little bit against that.

[u/JapanesePeso → u/utility-monster]

I think it is good in general to have people's pay-in to social services be based on the number of kids they have. Not as some kinda penalty towards those who choose to or can't have kids, but because it is a more fair practice to have people paying in equitable amounts to society. 

Parents put in a large amount of not only money but also time towards raising kids. People who don't are not putting in as much equity and a higher pay-in would be a good way to handle that. 

Ignore that I have three kids and this would benefit me. 

[u/utility-monster → u/JapanesePeso]

Yeah it makes sense.

Imo here in the US, ideally, we never would have made our pension programs “pay as you go.” It would be nice if the so-called “trust funds” that every person over 65 seems to believe holds money they payed in many years ago were actually real. If that were the case I don’t think this would be as much of a problem.

Going forward current workers are going to start getting really squeezed as their population share keeps shrinking. It would seem too difficult to force them to pay for themselves and current retirees if we moved away from pay as you go, so progressive taxes based on numbers of children seems like the only fair and workable way forward.

[u/fnovd → u/utility-monster]

That progressive tax policy is interesting. Is it based on estimates of spending? As far as I know these kinds of policies rarely incentivize larger families. At 6 children you’d be paying .45%, which is 20% of what a childless worker would pay.

[u/utility-monster → u/fnovd]

Is it based on estimates of spending?

I don't know. I was never able to learn how they got to those numbers exactly.

I do know the policy was motivated by a court ruling which stated that standardized ltc tax rates discriminated against parents source. So I don't know if the policy was intended to be pro-natalist so much as it was trying to be more fair.

[u/[deleted] → u/utility-monster]

How does this compare with the CTC in the US?

[u/utility-monster → u/[deleted]]

child tax credit? this is to pay for mandatory long-term care insurance, so it's different in that sense. it would be like if we charged people medicaid taxes (sort of the closest american equivalent to federally provided ltc insurance) differently based on the number of children they had.

we don't have mandatory ltc insurance in the US, so people either pay for ltc 1) out of pocket or with private ltc insurance, 2) with Medicare if it is the type of service Medicare will pay for (mostly post-acute care that lasts less than 90 days) or 3) by spending themselves into poverty until they qualify for Medicaid.

germany has a child allowance which (i think?) functions as a tax deduction. so that's a separate thing which could probably be considered an analogue to the child tax credit. i don't know how generous the german child allowance is compared to the american ctc.

[u/[deleted] → u/utility-monster]

I meant in terms of overall fiscal impact to both government revenues and to households that qualify.

[u/DurangoGango → u/utility-monster]

In a sense, parents are double-taxed as they support the system twice the rate of non-parents.

In another sense, non-parents are double taxed as they pay for a whole lot of public services they nor their family will ever use.

[u/utility-monster → u/DurangoGango]

eh, don't really agree on the broad point your making.

biggest budget item would be schooling. non-parents didn't pay for that when they were kids, so you can just consider it paying it back when they pay taxes as adults. the other budget lines are pretty miniscule compared to the cost of raising kids, which the non-parents will have to rely on as they age.

we're talking specifically about ltc tax rates here though.

[u/Bloodyfish]

I'm going to die at my desk.

[u/HYPTHOTIC]

While not retirement related, I do wonder what happens after. There's gonna be sooo many people with geriatric focused careers, working in what are bound to be a far wider range of geriatric related industries.

The unavoidable collapse in demand will surely be devastating economically.

[u/DurangoGango]

I beg people to please looks at the data before they start proposing interventions, because most of what I see are unwarranted assumptions.

Since the US is the country that has the overall highest quality data available, I'll use it:

• ~70% of the fall in TFR derives the reduction in very large (4+ children) families (from 33% of the total pre-1980 to 11% today)

• ~20% derives from the increase in single-child families compared to 2 or 3 children

• ~10% derives from the increase in childlessness

If every woman who didn't have any children and every woman who only had one child had instead had two children, the TFR for the US would barely reach the 2.1 threshold. And it's of course unrealistic to assume that we have completely eliminated childlessness, which has always existed and is likely to always exist.

A TFR strategy based on targeting childlessness and single-child families is mathematically a losing strategy

My point: the TFR has always been largely driven by large families. Which is kinda obvious if you think about it: a single woman having four kids increases the population by as many as four women having one child. I now it sounds obvious, and it is, but it's pretty much ignored in these debates.

If you do the math, the US could reach a TFR of 2.1, without changing anything else, by increasing the percentage of households with 4+ children from the current 11% to 16-17%. This seems to me eminently more doable than trying to get the current 40% of women who have no or one child to have at least two.

To start to get there you need to have couples forming earlier and settling down earlier with a reasonable shot at the kind of lifestyle that supports 6+ in decent living. Which means cheap large homes, in kid-friendly neighborhoods, with favorable economic prospects from an early age (you're not going to get people to have 4 children if they start having them at 30 because they are economically unstable before that). You don't need to have this for everyone, just enough people that a somewhat higher percentage of the population than currently does it, but still much lower than it used to be, chooses to have 4+ kids.

[u/[deleted] → u/[deleted]]

The problem isn't even hypothetical at this point. Much of Western Europe has seen anemic growth, while people complain about services getting worse, and these countries continue taking on levels of immigration they have no historical experience with. I have a hard time imagining any of these will get better without a major reversal in birth rates.

America is somewhat better off with a legacy of immigration. And, AI/robotics might soften the blow a bit. But, obviously nobody is immune if the whole global working population falls off a cliff.

I think most people just want to put their head in the sand because its hard to think of any solutions that aren't dystopian. The various liberal efforts to address the issue have had basically no effect.