Low Birth Rate Threatens Social Security and Medicare

The historically low birth rate is threatening the U.S. economy.

According to the Centers for Disease Control and Prevention, the number of U.S. births in 2011 was 3.96 million, a 1.3 percent growth rate. This rate is less than half the 3.0 percent rate in 1909.

Including net immigration and deaths, the working-age population is growing at an anemic rate. Further threatening the economy are low levels of employment; inflationary pressures for essential commodities, such as food and energy; and almost nonexistent income growth.

These dynamics are placing increased stress on an already fragile Social Security and Medicare system. The Social Security Administration anticipates the trust funds for these programs will be exhausted sooner than expected.

Specifically, the trust fund for Disability Insurance will be exhausted by 2016, the trust fund for Medicare by 2024 and the trust fund for Social Security by 2033.

After 2033, a 5 percent increase in the payroll tax (above the current 15.3 percent rate) will be required to fund existing benefits for the projected population.

Should birth rates continue to fall, the trust funds will deplete faster because there will be fewer workers paying in to the system, and higher payroll taxes will be needed.

Medicare expenditures pose a significant risk, since payments are predicated on usage, while social security payments are capped per capita and by cost-of-living adjustments. Fifty years ago, healthcare expenditures as a percentage of gross domestic product were 5 percent. Today they approach 20 percent, nearly double the global average. Despite this steep increase, mortality statistics compiled by the CDC suggest the United States ranks close to 50th worldwide.

How much more of our resources should we dedicate toward healthcare? Our economy depends on the answer to this question.