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The Polish birthrate has plummeted in recent years, falling from 2.3 children in 1990 to 1.3 today.  What should they be doing to encourage large families? 

No government of a country whose birthrate has fallen significantly below replacement has ever succeeded in once again achieving replacement rate fertility.  Once the birthrate falls to what the U.N. Population Division calls "low low fertility," no combination of government policies and subsidies appears sufficient to re-boost the birthrate. 

Why has the problem proven so intractable to date? Most observers simply conclude that this is because the government hasn’t done enough: Strengthen pro-natal policies and increase government subsidies to women who bear children, and the problem will be solved. I believe that their position, however reasonable it sounds, is fundamentally wrongheaded. For a close examination of these policies and subsidies reveals that they are, in their effect on fertility, self-limiting and even self-defeating.

Many European countries have long had policies and programs in place that are intended to raise the birth rate by offsetting some of the costs and consequences of childbearing.  These policies include:

(1) A one-time bonus:  the government provides parents with a fixed sum of money, as in Russia, where each family receives a bonus of $9,600 following the birth of a second child and any subsequent children.


(2) A parental leave program, allowing parents to stop work after a child is born, as in Sweden where either the mother (or the father) can take 480 days of parental leave with guaranteed reemployment.

(3) A government subsidy for a set period of time, often pegged to the parental leave program, as in Sweden, where the mother can receive 80% of her salary during the period of leave.

(4) Government-run daycare centers that take babies to preschool-aged children, as in France and Sweden.

(5) Small monthly subsidies for dependent children, called, in German-speaking countries, “Kindergeld.”

None of these policies, either singly or in combination, have succeeded in recovering the birth rate to replacement.  Why?
Work was made for man
Not man for work.
First, these policies ignore the dynamics of the natural family, consisting of a father, a mother, and their natural and adopted children in favor of gender- and marriage-neutral policies.  The German program, by tempting fathers to leave the work force for long periods of time, damages their career prospects, and will undoubtedly create long-term financial costs for the family.  Fathers work harder the more children they have; this phenomenon should be encouraged, not discouraged.

Second, these policies are overly egalitarian.  These policies seek to encourage all couples to have one more child.  But given that couples vary widely in their fertility desires, the focus should properly be on allowing couples to achieve their own desired number of children.  Those couples who, for reasons of religious conviction or personal fulfillment, desire to have larger than average families, should be encouraged, since they are providing for the future in the most fundamental way, by providing the future generation.
Third, these government subsidies are an inefficient use of tax dollars.  Studies in the U.S. have shown that the government is a very inefficient consumer, only able to recover 30 cents of value from every dollar it spends.  That is why, for example, in the U.S., we have privatized waste disposal services and, in some states, prisons.  Taking 50 percent of the earnings of couples with children and then giving them back government subsidies is not only inefficient, it discourages the sense of individual responsibility and initiative that is necessary for strong families and robust fertility.

Fourth and finally, these policies fail to address the principal financial stress on the family, namely, that which results from high tax rates.  While America taxes away roughly one-third of the earnings of its citizens, European governments consume one-half.  By reducing the disposable income of young couples, this has a tremendous and negative impact on fertility.

The modern socialist welfare state—by providing abortion on demand, state-funded contraception and sterilization, by fracturing the intergenerational dependency of the family, by adopting “gender-neutral” policies that undermine the complementarity that is at the heart of successful marriage—relentlessly suppresses fertility.  Yet, as my late friend Julian Simon was fond of remarking, human beings are the ultimate resource, the one resource that we cannot do without.  We cannot continue to consume more of this resource than we produce.  Otherwise, not only pension funds, but entire economies, will collapse, first in Europe, then in Canada and Japan, and finally in the U.S. as well. 

The solution, I will tell the Poles and other Europeans, lies not in more government programs, subsidies, and daycare centers, but in protecting couples from the voracious demands of government on their income.
The U.S. Approach

In the U.S., we have taken a fundamentally different approach than Europe.  Instead of looking primarily to government subsidies to solve the birth dearth, we have instead sought to shelter young couples from government taxes altogether.  Both the “income tax deduction for dependents,” and the “dependent child tax credit” have helped to raise the disposable income of couples with children, especially those in the lower tax brackets, by 20 percent or so.  As a consequence, the U.S. birth rate has climbed so that it is now at replacement.
Of course, it would be better if the birthrate were higher still.  The U.S. system does not go far enough, since couples with children are not sheltered from all taxes, merely from part of the income tax.  They are still obligated to pay the same level of social security taxes as their childless neighbors, who are “free riders” on the system.  That should change.  Those who are raising—at great expense—future taxpayers, should not have to pay taxes themselves.   
Income tax deductions for children help families but even more should be done.
The goal is to shelter middle-class couples with three or more minor children from both the income and the social security tax.  Sheltered from these federal taxes, family income would increase to the point where more mothers would be financially able to stay home and care for their children.

Some would undoubtedly choose to do so, since U.S. surveys show that many w

omen who work would rather be home with their children.  Young women express a desire for 2.5 children or so, significantly above the 2.1 that women of reproductive age currently average.  Allowing women to act on their fertility preferences would further increase fertility, thus creating more vital and irreplaceable human capital.

If such a policy were adopted in Europe, the effect would be even more striking.   Eliminating the heavy taxes on income would double the effective income of the fathers of families with three or more children. 

This will not be easy.  Any policy that seeks to strengthen the family and raise the birth rate will receive only lukewarm support from even center-right politicians.  It is hard for those inside the government–who are accustomed to proposing and providing government solutions to problems–to understand that, where matters of fertility are concerned, the government is the problem.

We must seek to protect young couples, those who are traditional minded by choice, from the encroachments of the leviathan state.  For they are our future.
[21May07, Steven Mosher, PRI]