Children as Contributions in Kind

Commentary

Some years ago, when I was researching different social security systems, I stayed briefly with a German friend who had recently become a father. My friend told me of the time he and his wife were walking with their new baby when a stranger, seeing the infant in the stroller, thanked them for contributing to his retirement.

I was more used to people seeing children as a burden or an indulgence rather than a contribution. Yet, like all previous societies, we depend on the contribution parents make by having and raising children.

Even where children are wanted, they may be seen as an expensive consumer item. The median cost of raising a child from birth to age 18, as of 2020, was $233, 610. And that was before the current inflation. Children are an expense, as many young people see it, to be postponed if possible until the late 20s or longer. The limits on such delay are set mainly by the apprehension of the biological limits of a healthy pregnancy.

Either way, as a burden or luxury, the needs of children get subordinated to the desires of adults.

But even in economic terms (leaving aside the emotional and spiritual rewards and anxieties of parenthood) children are not only an expense, welcome or not. They are also a contribution parents make to society, without which it could not long survive. Children themselves grow into contributors to the economic security of their parents and, directly and indirectly, of others.

In most places and for most of human history there was no public social security system and no private pensions either.

Your children were your social security. They provided for you in old age, sickness, or disability. From an early age, they produced as well as consumed (helping on the farm or in the family store or restaurant, for instance). The adult child’s duty to honor parents included taking care of them when they could no longer take care of themselves.

Before there was a public system of social protection from the risks of lost income like our Social Security program, there was, then, an informal social security system within families. The transfer of resources from adult children to their elderly or sick parents was enforced, not by taxes paid into a social insurance program, but by a culturally shared sense of obligation. That cultural value of filial piety or veneration for one’s parents was common to varying degrees across most cultures.

In most U.S. states and many other countries, there is also a filial responsibility law requiring financial support from adult children for their impoverished parents and sometimes other close relatives.

So before the advent of modern social insurance or public pensions, there was already an intergenerational transfer in which children were active contributors to their parents’ welfare. One negative indicator of adult children’s importance to their elderly parents’ welfare is the overrepresentation of childless men in American poorhouses as late as 1910. (Congress passed the Social Security Act in 1935.) The census for that year showed that for many adults, especially men, the informal insurance of children was what stood between them and destitution in old age.

Children as Contributions in Kind

We contribute to the current federal social security program—the program that reduces loss of income from earnings in the event of old age, becoming a widow or widower, or disabled—in two ways. Firstly, we pay FICA taxes or contributions directly to support the program. And secondly, we have and raise children.

Children are as essential to the program as taxes. They grow in most cases, through a long period of dependency, both into wage-earners who will pay taxes and parents who will raise their own children to be future taxpayers and parents.

As taxpayers, we don’t pay money into our own social security savings account. Our social security taxes or contributions support current beneficiaries of the program. As parents, we provide for future beneficiaries like ourselves and our generation, who will receive support when we become old, widowed, or disabled.

The assumption underlying this intergenerational transfer system is that the program will still be around when it’s our turn to receive benefits. Not everyone believes it. Some, like those selling whole life insurance policies, want us to believe it.

But historical experience shows that public social insurance has a good record of survival in situations where other financial institutions and companies have collapsed.

Germany’s social insurance system, for example, the world’s first, survived world wars, depressions, and hyperinflation. The advantage of such systems is what many see as their weakness. They depend not on real assets held and invested to ensure the program can meet future obligations. They depend rather on the government’s power to raise taxes or borrow to meet its obligations. If that power goes, nothing much else in the financial system is likely to survive.

Social Security can seem like a savings program in part because it was designed from the start to look like insurance and not welfare. It differentiated itself from assistance programs like the old poor relief or modern TANF or Food Stamps, in not basing eligibility on need. You don’t have to be poor to receive benefits. Unlike those programs, Social Security benefits are related to your earnings and tax contributions to the programs, not to your need.

The Two Pillars of Social Security

From the perspective of Social Security, children are an equivalent to taxes. They are an in-kind contribution that parents make to the program. Without that contribution of future workers and taxpayers, the system would collapse. The system is sustained by two pillars, taxes and children.

But there’s a big difference between the contributions we make in the form of children and the social security taxes we pay as a regular deduction from our paycheck.

Generally, we have no choice about paying the FICA tax that supports Social Security and Medicare. It’s mandatory and deducted from our paycheck.

When we have and raise a child we also contribute to Social Security. But that tax-equivalent isn’t mandatory. You don’t have to have children—you just need other people to do so.

Benefits are related to earnings and the Social Security taxes you pay. Up to a limit or cap, the more you earn during your working life, the higher the benefit you will receive when the time comes. Your tax contribution is recognized and rewarded.

The program thus acknowledges the tax contribution we make, but it penalizes the contribution we make by parenting. Raising children to adulthood usually requires the main caregiving parent (typically the mother) to take time out of the workforce. As a result, she will likely earn less over a lifetime and so receive lower benefits. Social Security rewards occupational success, not parenting.

Acknowledging Children as Contributions

Policymakers have adopted or proposed various ways of recognizing and compensating the in-kind contribution to the system made by parents. One way has been to allow women to retire with benefits five years earlier than men—a benefit that assumes that mothers bear the cost (in earnings forgone) of child raising. It doesn’t differentiate between women who raise children and those who don’t. Such earlier retirement benefits, as in Austria or the UK, have been phased out.

Other measures that recognize the need for and contribution to society of parenting generally provide funded parental leaves for a period after each birth. Some subsidize all child rearing with a child benefit or family allowance, paid to the main caregiver. (Tax deductions for dependent children, on the contrary, usually go to the main earner and are inversely related to need.)

Another approach is for the Social Security program to credit those who raise children with lower taxes or higher benefits. A parent may receive credit for an extra year of coverage for each child raised. This can be structured so that parents pay a lower tax rate (so they get the benefit of lower taxes when they are likely to need it most, as young parents) or receive higher benefits in retirement decades later.

There are issues and objections to all these strategies, each requiring a separate discussion. Here I just want to suggest that we look at children as contributors, to society and to social security, not just as a burden or luxury.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.