Download Trends in Federal Spending on Children

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Paying for Investments in Children
Isabel Sawhill
October 21, 2008
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Trends in Federal Spending on Children
• Total real spending increased 1.4% 2004-2008. Compares
to 12.2% for all spending
» Discretionary spending declined by 6.7%
» Entitlement spending increased by 5.7%
• “The 45-year trend of declining investments in children as a
share of the federal budget has continued unabated during
the past five years.” First Focus, 2008, p. 6,Children’s
Budget 2008
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Spending on the Elderly will Crowd Out
Spending on Children
The Budget Squeeze: Fiscal Years 2000 to 2030
22.0%
21.0%
Percentage of GDP
20.0%
19.0%
Receipts
(if tax cuts made permanent)
18.0%
17.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
Resources
Left for Other
Domestic Outlays
Spending on Non-Child Social Security,
Medicare, Medicaid, Defense, International
and Interest on Debt
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Note on assumptions: On the revenue side, tax cuts are made permanent and full AMT relief is provided; on the spending side Defense plus
International is fixed at 4.1 percent of GDP after 2008. Authors estimates, The Urban Institute, 2007. Authors' calculations based on data
from the Budget of the U.S. Government FY 2008 ; CBO's Budget and Economic Outlook, 2008-17 and the Social Security and MedicareTrustees
Reports (2006).
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Advocates for Children Must:
• Avoid wishful thinking
» Re taxes
» Re a war dividend
» Re health care savings
• Forge a bipartisan compromise
» Invest new resources in children linked with…
» Reform of entitlements
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Why This Makes Sense
•
•
•
•
•
Elderly better off than in the past
Younger families struggling
The miracle of compound interest
We can protecting vulnerable groups
Reframe debate around life cycle view
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Select Comparative Statistics for the Elderly
and Non-Elderly
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Source: Isabel V. Sawhilll, “Paying for Investments in Children,” in Big Ideas for Children: Investing in Our Nation’s Future , ed. First Focus (Washington, D.C.: First Focus, 2008).
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Baby Boomers Are Affluent
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The Miracle of Compound Interest
$140
Future Value
$120
$117.39
$100
$80
$60
$29.46
$40
$20
$11.47
$0
10
15
20
25
30
40
50
Number of Years Investment is Allowed to Grow
5% rate of return
7% rate of return
Source: http://www.moneychimp.com/calculator/compound_interest_calculator.htm
See Appendix A, Chart 3.
10% rate of return
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High Priority Investments and
How to Pay for Them
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Conclusion
• Must make cost-effective investments
• Must protect the vulnerable elderly and phase
in any reform gradually
But …..
• A nation that gives priority to its elderly over its
children doesn’t have much of a future.