Houston, We Have A Problem!

The Plunging US Birth Rate

It was 53 years ago that Jack Swigert, Command Module Pilot aboard Apollo 13, reported to mission control in Houston that an explosion had occurred onboard the NASA spacecraft as it sped toward the moon. His actual words, "Okay, Houston, I believe we've had a problem here," have been somewhat shortened in pop culture to "Houston, we have a problem," which has, over time, become synonymous with all manner of emergencies. Quick action and ingenuity, fortunately, brought the astronauts back safely.

Well, Houston, we have another big problem, and there's no quick fix like the one NASA conjured during that nail-biting emergency over a half-century ago, not one many Americans will find acceptable, anyway. We are experiencing a severe, continuing, and somewhat unexplainable decline in the birthrate in America. If the trend is not reversed, we will face some gut-wrenching realities. One such reality may be higher Social Security and Medicare tax rates, or, perhaps, an earnings threshold higher than that on which these safety-net taxes are currently paid, or even a reduction in retirement and medicare payments altogether. Another possibility may be that retirement gets pushed off several years.

Here's the thing. As fewer babies are born, and our population ages, the growing imbalance between young and older citizens will eventually result in fewer working-age Americans contributing to the nation's Social Security and Medicare trust funds and other safety-net programs on which tens of millions depend.

Our doggedly declining birth rate will result in increased taxes to fund Social Security and Medicare payments or substantially reduced benefits. Working Americans today fund, through the Social Security taxes they pay, the funds disbursed to retired Americans. The higher the birthrate, the more workers there will be to fund retirement or medical bill payments to our senior citizens. If the birthrate continues to fall as it is now, retired workers will outstrip the number of younger workers who are paying into the system, likely reducing the amount that could be paid out to retired workers.

This is a Gordian Knot in which America is tied, as birthrates are declining here and just about everywhere else. Much of the decline in birth rates can be attributed to the widespread availability of contraceptives and the increase in women pursuing careers. Another factor is that fertility rates typically decline by as much as one-third during civil conflict and instability.

ECONOFACT, published by the Edward R. Morrow Center at Tufts University, notes that until the 2007 recession, the number of babies born per woman in the United States had been stable for decades, fluctuating within a narrow range, consistent with economic conditions. Fewer babies were born during lean times, and more babies were born when the economy improved. That trend changed dramatically during the 2007 recession and hasn't improved. The birth rate in the United States has fallen by 20% since the 2007 recession, and neither demographic, economic, nor national policy changes can explain this decline. Birthrates are simply plunging.

Regardless of the cause, the sharp and continuing decline in the birthrate in America will put a real squeeze on a long-standing commitment America has made to its people. For example, Social Security, which everyone pays into during their working years, pulls about 22.5 million Americans out of poverty yearly, about 70% of whom are retired. Nine in ten retirees in America, nearly 67 million American men and women, receive monthly Social Security benefits, and 40% of them depend on their Social Security checks to make ends meet.

The 2022 Social Security Trustees Report estimates that the cash shortfall will be about $20.4 trillion before the end of the century. According to the non-partisan Peterson Foundation, if Congress, which currently can't seem to agree on much, does not take measures to boost revenue or reduce expenditures, retired Americans and those receiving survivor benefits could see a 23% reduction in payments as early as 2034.

While various economic factors pressure Social Security and Medicare, nothing poses a more significant threat than the doggedly consistent decline in birth rates in America. It takes 2.1 live births per woman of childbearing age to maintain the size of a country's population, or to put it another way, for a generation to replace itself. As of 2020, America was 22% below that level, reflecting a trend that shows no sign of easing. This steep decline in the birthrate, no doubt, has many causes. The pandemic didn't help, nor does concern about personal economic security. Also, recent research by the Pew Charitable Trusts demonstrates that the slowdown in legal immigration into the United States has become a critical factor in our declining birth rates.

So, what does all of this mean? Probably not too much for this current generation, but it will become a serious problem a short generation from now. Last year, the Social Security Trustees Report estimated a shortfall of funds of 3.42% through 2096 at an average fertility rate of 1.99 (remember, it takes a fertility rate of 2.1 to hold the population steady). So, if the birth rate were 1.69 instead of 2.1, the shortfall would jump from 3.42% to 4.13%, equating to trillions of dollars more than the $20.4 trillion shortfall I referenced earlier in this column. Now, let this sink in. In 2020, the fertility rate in America was 1.64, or less than the 1.69 fertility rate on which the $20.4 trillion shortfall at the end of this century was predicated.

It's a bit like a grim game of musical chairs. Men and women can look forward to their retirement benefits as long as there are plenty of young workers to fund those retirement years. But when the number of older workers, in effect, overwhelms the number of younger workers paying into the system, the unavoidable result is a significant reduction in retirement benefits or a significant increase (think taxes) in what is required to keep the Social Security and Medicare systems solvent. Meanwhile, no one seems to have any answers to the ever-sinking birthrate in America.

Houston, we have a problem.

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