Kids' Share: An Analysis of Federal Expenditures on Children through 2008

EXECUTIVE SUMMARY

Less than one-tenth of the federal budget was spent on children in 2008, $295 billion out of a total of $2,983 billion in outlays. Well over a third of the federal budget (38 percent) was allocated to the elderly and disabled for the non-child portions of Social Security, Medicare, and Medicaid. The children’s share of the tax expenditure budget was also less than 10 percent.

Kid's Share: An Analysis of Federal Expenditures on Children through 2008

This third annual Kids’ Share report examines expenditures on children during a time federal budgets are undergoing much change. Our estimate of how much of the federal budget was directed toward children in 2008 is based on detailed budget data released in May 2009 and captures the effects of early responses to the recession. The effects of the American Recovery and Reinvestment Act of 2009 do not appear in the 2008 expenditures but do figure prominently in the expenditure projections included in the final section of the report.

After an initial section explaining the methodology involved in estimating children’s expenditures across more than 100 federal programs and tax provisions, the report presents findings in four areas: expenditures in 2008, historic trends across the budget, historic trends within children’s expenditures, and projections through 2019.

Expenditures on Children in 2008

Federal budget outlays totaled $2.98 trillion in 2008, of which less than 10 percent ($295 billion) was devoted to children. In addition to outlays from a range of federal programs and refundable tax credits, there was an additional $73 billion in reductions in tax liabilities for families with children. With these tax expenditures, which represent less than 10 percent of the total tax expenditure budget, federal expenditures on children totaled $368 billion in 2008.

Six large programs accounted for more than three-fifths (62 percent) of all expenditures on children in 2008. Three of these programs - the child tax credit, Medicaid, and the Supplemental Nutrition Assistance Program (SNAP), formerly the Food Stamp program - had higher expenditures in 2008 than in previous years as a result of early responses to the recession. Expenditures under the child tax credit, for example, included a one-time tax payment of $300 per child as part of the tax rebates in the Economic Stimulus Act of 2008.

While our focus is federal expenditures, this year’s report adds an important glimpse into the broader picture, which includes state and local expenditures. In 2004, federal spending represented about one-third of total public investments on children. State and local spending data are not yet available for 2008, but they may represent a smaller share of the total, given fiscal pressures on state and local budgets in times of recession.

while domestic spending has increased. Social Security, Medicare, and Medicaid have increased fourfold from  1960, from 2.0 to 8.0 percent of gross domestic product (GDP) (these spending estimates exclude Social Security and Medicaid spending on children to avoid doublecounting). Outlays on children also have grown, more than doubling between 1960 and 1980 (from 0.6 to 1.4 percent of GDP) and increasing more gradually since then, rising to 2.1 percent of GDP in 2008. While outlays on children have increased in dollars and as a percentage of GDP, children are receiving a smaller share of the domestic federal budget, as shown in a comprehensive analysis that includes children’s tax expenditures as well as outlays. Under this measure, the children’s share of domestic federal spending - spending that excludes defense and international affairs and adds children’s tax expenditures - has actually shrunk over time, from 20 percent in 1960 to 15 percent in 2008. That is, the children’s share of the budget has shrunk by almost a quarter. In contrast, spending on the non-child portions of Social Security, Medicare, and Medicaid has more than doubled, rising from 22 to 47 percent of domestic spending.

Trends in Expenditures on Children, 1960–2008

During the 1960s and early 1970s, federal programs serving children and families expanded considerably. Since 1975, however, spending on programs benefitting children has risen only moderately as a percentage of GDP, and that growth is solely due to growth in Medicaid spending and tax credits. Most of the significant increases in spending on children in the past 30 years have occurred in taxes, including the expansion of the earned income tax credit in 1993 and the enactment of the child tax credit in 1997.

Over the past half-century, spending on children has gradually shifted from providing cash payment to parents to providing in-kind benefits and services to children and families. Some of the decline in cash payments to parents has been offset by an increase in refundable tax credits. Another long-term trend is a shift toward spending on programs that are means tested - that is, targeted to low-income families. Finally, there has been a long-term decline in the value of the dependent exemption, particularly between 1960 and 1985, followed by increases in the earned income tax credit and child tax credit.

Future Trends in Expenditures on Children, 2009–19

The American Recovery and Reinvestment Act (ARRA) included substantial increases in spending on children, including increases in Medicaid, education, SNAP (food stamps), the child tax credit, and TANF, as well as smaller programs such as Head Start and child care assistance. As a result, spending on children will rise to a record high of 2.2 percent of GDP in 2009. However, there were even larger infusions of government funds for transportation, infrastructure, energy, and the bailout of banks and other institutions, so total government outlays are projected to increase to 27.4 percent of GDP, the highest level since World War II. As a percentage of total federal outlays, spending on children is actually projected to decline, from 9.9 to 8.2 percent of total outlays.

As the ARRA provisions expire, we project that spending on children will shrink over the next decade, falling to 1.9 percent of GDP by 2019, if current policies continue unchanged. In contrast to the projected decline in spending on children, spending on the elderly and disabled is projected to rise steadily. Over the next 10 years, the non-child portions of Medicare, Medicaid, and Social Security are expected to increase 2.3 percentage points (from 8.0 to 10.3 percent of GDP). In other words, the increase in spending on these three programs in the absence of reform will exceed total spending on children. There is a growing danger that the escalating costs of these major entitlements, as well as growing interest payments on the national debt, will crowd out spending on children’s programs.

These budget projections assume no change in current policies other than the extension of expiring tax provisions. In fact, the new administration and Congress are considering several significant policy and budget changes, including major reform of the nation’s health care system, investment of federal resources toward broad-scale education reform, and attention to the nation’s long-term fiscal and environmental challenges, all of which could have direct impacts on spending on children over the next decade.

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Editor's note: This report is a joint project of the Brookings Institution and the Urban Institute. A hard copy of the full report is available from First Focus.