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1 Paying for Investments in Children Isabel Sawhill October 21, 2008 2 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 3 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). 4 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 5 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 6 Select Comparative Statistics for the Elderly and Non-Elderly 7 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). 8 Baby Boomers Are Affluent 9 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 10 High Priority Investments and How to Pay for Them 11 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.