The child poverty rate increased dramatically in 2022 after dropping to a historic low in 2021, according to new Census Bureau data. The drop in child poverty in 2021 was largely attributable to the temporary expansion of the child tax credit (CTC) and to the three economic impact payments (or stimulus checks) families with low incomes received.
The CTC expansion in 2021 provided immediate benefits to children and families, helping them meet basic needs amid the COVID-19 pandemic and soaring inflation. It also held promise for future societal benefits: because people who experience poverty as children have lower earnings and tax contributions and are more likely to need public supports as adults, reducing the number of children living in poverty can save the country hundreds of billions of dollars annually when those children reach adulthood.
Recent Urban research supports these findings. Much government spending on children, particularly in health and education, has long-term payoffs for society, and many programs pay for themselves in the long term through higher tax revenues and lower government expenditures.
But public spending on children has declined since temporary pandemic relief measures have ended, and it’s projected to continue dropping over the next decade. Understanding trends in public investments in children and the societal benefits of such spending can help policymakers and advocates as they seek to boost investments in children.
Many public investments in children have payoffs for society in the long term
Income supports for families, including tax credits and other tax benefits, Social Security survivor and dependent benefits, and Supplemental Security Income, represent the largest category of public investment in children. Federal, state, and local governments also support children’s well-being through public spending on health programs, including health coverage through Medicaid; access to healthy food through nutrition programs such as the Supplemental Nutrition Assistance Program; K–12 and early education and child care programs; and child welfare and social services, housing, and youth training programs.
These programs can substantially improve children’s well-being in the short and long terms. For the programs with the largest returns, the estimated return to society is $10 or more for each dollar invested in children. Urban research shows the largest payoffs for specific programs come from children’s health, early care and education, and K–12 education programs. Many of these programs also more than pay for themselves over time by increasing tax revenues and reducing government expenditures.
The Earned Income Tax Credit and housing programs also have payoffs for society when accounting for their effects on children’s academic achievement and the higher adult earnings and tax payments and lower public expenditures associated with higher achievement.
Public spending on children is expected to decline
In 2019, the federal government invested more than $500 billion in children. This sum increased to around $875 billion in 2021 because of pandemic relief efforts, but children’s spending began declining in 2022 and is expected to decline further.
Spending on children fell precipitously in 2022 because benefits from the expanded CTC were only available for tax year 2021, and because families received three rounds of economic impact payments in 2021 and 2020. Recent legislation suspending the debt ceiling allowed the federal government to take back unspent pandemic relief funds, and it limited discretionary spending through annual congressional appropriations, which makes up a substantial share of expenditures on children. Together these mean children’s spending will be even lower than in recent projections that did not account for the debt ceiling legislation.
Taking a longer view, children’s spending will fall even further as a share of the budget over the next decade, from 10 percent of federal outlays in 2022 to 6 percent in 2033. Adult spending on Social Security, Medicare, and Medicaid entitlements and higher interest payments on the national debt will grow and account for a larger share of the budget in the future, putting pressure on spending for children’s programs and other priorities.
Maintaining an expanded child tax credit would boost children’s spending
As federal and state policymakers consider measures that would boost children’s spending, the CTC is front of mind. Recent bipartisan negotiations have focused on extending the 2021 CTC expansion or maintaining a larger credit through alternative proposals. Both strategies would increase investments in children relative to current projections. In addition, 11 states have created or expanded state CTCs.
The CTC and other income supports provided through tax credits—which account for a growing share of expenditures on children—support children’s well-being in the short run by reducing hardships such as food insecurity. They also allow families to invest more financial resources in children and may reduce parental stress.
Maintaining or expanding the CTC would have a societal payoff, too, because it and other children’s spending can improve children’s educational outcomes and overall health as well as their earnings, health, employment, and tax contributions in adulthood. Boosting investments in children would not only aid children and their families in the immediate term but would benefit the government and society at large.
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The Urban Institute podcast, Evidence in Action, inspires changemakers to lead with evidence and act with equity. Co-hosted by Urban President Sarah Rosen Wartell and Executive Vice President Kimberlyn Leary, every episode features in-depth discussions with experts and leaders on topics ranging from how to advance equity, to designing innovative solutions that achieve community impact, to what it means to practice evidence-based leadership.