Investments in children are projected to decline by 20 percent before cuts in the FY budget resolution.
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Tax credits and safety net programs for families improve children’s education, health, and employment outcomes. They also decrease reliance on public programs in the long term. In a new fact sheet, Urban Institute researchers find that federal investments in children will not keep pace with economic growth, and that decline will be more severe if Congress enacts the spending cuts in the House of Representatives’ FY 2025 budget resolution.
Overall federal investments in children as a share of the economy are set to decline by 20 percent compared to spending levels before the pandemic. In 2019, public investments in children were about 2.4 percent of GDP. In 2034, they are projected to be about 1.9 percent.
Tax provisions and education spending will see the largest percentage declines, decreasing by more than 30 percent. The main driver of this long-term decline is that major tax benefits for children are not tied to economic growth.
The maximum child tax credit (CTC) does not increase with inflation. That means its value as a share of GDP tends to decline even faster than that of the earned income tax credit and other tax provisions that are adjusted for inflation.
Proposed cuts to Medicaid in the FY2025 House budget resolution could blunt or even reverse projected relative increases in health spending and affect children’s long-term health. After federal tax provisions, health is the largest spending category for children. Currently, health is the only area projected to see a modest increase (6 percent) between 2019 and 2034.
In a corresponding fact sheet, the researchers outline how policymakers could use the tax code to better serve children. Recommendations include increasing the maximum CTC and indexing it to inflation, ensuring families with little to no income can receive the CTC as a refund, assessing how tax code benefits affect families at different income levels, and setting an annual target for federal tax spending on children.
Urban Institute is a nonprofit research organization that believes in the power of evidence to improve people’s lives. Urban as an organization does not take policy positions but Urban’s independent experts are empowered to make recommendations based on their research.
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