What comes to mind when you think of federal spending on children? Head Start? Child care?
In fact, tax provisions are the largest source of federal expenditures on children. An estimated $173 billion was spent in child-related tax provisions in 2012, or 39 percent of all federal expenditures on children, according to the Kids’ Share report released today. This includes cash refunds to families (outlays) and reductions in tax liabilities, through policies such as the earned income tax credit, the child tax credit, the dependent exemption, and smaller provisions. In contrast, spending on early education and care amounts to less than 3 percent of federal expenditures on children.
Tax policy changes can have a big effect on kids
Given how much money goes to families with children through tax policies, child advocates are being advised to get into the tax reform debate. One reason to do so is that certain expansions to the child tax credit and the earned income tax credit are scheduled to expire after 2017. For example, families with earnings below $10,000 will no longer be eligible for the child tax credit after that date.
In addition, broader changes to tax policy could affect children. Of the $160 billion in tax breaks from excluding employer-provided health benefits from taxable income, $19 billion supports health insurance for employees’ dependent children. While limiting this exclusion may be a good policy choice, it could affect children’s access to health insurance.
Children get stuck with our spending cuts now and inherit our debt later
The biggest tax issue facing children, however, is not what happens to particular tax provisions, but the fact that federal revenues continue to fall short of federal spending, year after year. No politician wants to argue for raising taxes, but how can we in good conscience continue increasing the debt our children—future taxpayers—will inherit?
Moreover, the failure to bring revenues and expenditures in balance threatens future spending on children. Over the next decade, federal outlays on children are already projected to drop as a share of the federal budget (from 10 percent to 8 percent) and as a share of the economy (from 2.2 percent to 1.8 percent of GDP; see figure below). Spending on children is likely to drop even further if Congress continues to try to tackle deficits from the spending side only.
To protect children from spending cuts now and unfair tax burdens in the future, Congress should take a more balanced approach and adopt revenue increases as part of the next budget deal or tax reform package.