Spotlight Exclusives

Spending on Children Is Down, Despite High Child Poverty

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Investments in the next generation are threatened in these fiscally austere times. Federal spending on children fell in in 2012, even as many families continued to suffer from unemployment and low earnings. Recent budget deals and long-term trends further threaten spending on children.  If it wants to protect children۪s programs from future cuts, Congress should take a more balanced approach to deficit-reduction, and include revenue increases in the next budget deal, rather than focusing exclusively on the spending side of the budget ledger.

In the seventh annual Kids۪ Share report, my colleagues and I document a $28 billion drop in federal spending on children in 2012, with lower spending on K-12 education, the children۪s portion of Medicaid, refundable tax credits, and other programs. This is the second year in a row that federal outlays on children have fallen, and the 7 percent drop this year is the single largest since the early 1980s. Since federal funding is critical for the health, education, nutrition, safety, health, and the overall development of children, these trends are troubling.

Much of the decline results from the depletion of funds provided by the American Recovery and Reinvestment Act of 2009 (ARRA), which increased federal spending on children during the recession. It expanded nutrition assistance benefits and the Child Tax Credit in order to stimulate the economy and support families in need. It also offered relief to states and localities, including enhanced federal spending on Medicaid and child welfare and the creation of the education-focused State Fiscal Stabilization Fund. With these priorities, almost one-quarter of ARRA funds went to children. As these funds have been spent down, spending on children has fallen.

Though the loss of temporary funds designed to fight the recession was expected, the funds are being exhausted even as the effects of the recession are still lingering. Unemployment rates averaged more than 8 percent in 2012, down from their peak of 10 percent but still well above pre-recession levels of less than 6 percent. Many of the unemployed have children, and an estimated 6.2 million children lived with at least one unemployed parent last year, including 2.8 million children living with a parent unemployed for six months or longer.

Child poverty rates also remain elevated: 22 percent of children, or 16.1 million children, lived in families with incomes below the federal poverty level in 2012, compared to a much lower 16 percent in 2001.

The combination of these trends the decline in spending on children and the continued high levels of unemployment and child poverty calls into question whether Congress and the president are placing a sufficiently high priority on the needs of children, the poorest age group, as they enact funding bills and budget deals.

The bigger concern, however, is not with current spending levels on children, but future ones. Spending on children is at risk of being squeezed as future federal budgets are increasingly consumed by interest payments on the federal debt and the ever-rising costs for health and retirement benefits under Medicare, Medicaid, and Social Security. With these rising costs, total federal spending is projected to be more than $1 trillion higher in 2023 than in 2012 under Congressional Budget Office projections. Children۪s programs will get a tiny fraction of that increase, just 2 cents of every new federal dollar in federal spending, or $20 billion. All the children۪s share of the increase will go to Medicaid and other health programs. Excluding healthcare, fewer dollars will be spent on children in 2023 than in 2012, according to our estimates. The largest projected reductions are in federal education programs and refundable tax credits.

And future spending on children may drop well below the level assumed in current law projections. As revenues continue to fall below outlays year after year into the future, the federal debt continues to grow, and there are repeated calls for spending reductions. It is short-sighted, however, to focus exclusively on spending reductions when trying to reduce the deficit. Children۪s programs would fare better if Congress enacted a budgetary package that combined revenue increases and spending cuts. Adopting proposals that slow the growth in Social Security and Medicare, while still protecting current recipients most dependent on those benefits, is another step that would help protect future investments in children.

As budgetary discussions continue to unfold, it will be important to keep an eye on how broad budgetary and tax reform packages further affect resources for children and investments in the next generation of leaders, workers, and parents.

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Julia Isaacs is a senior fellow at the Urban Institute and a visiting scholar at the Institute for Research on Poverty.

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