As budgetary push comes to budgetary shove, those who care about children can't stay aloof from budget issues. How money is allocated to particular programs is important and so are budget process rules that determine what gets debated—and how. In particular, only by being well-versed in the budget can one ensure that children's programs don't become an easy deficit target.

Traditionally, many children's activists shy away from the complex and confusing budget arena. But, more and more, that's where policy decisions are made about dollars spent, or not spent, on children.

Crunch Time
Programs for children and for working families with children are set to shrink rapidly over the next few years, squeezed mainly between rising expenditures on the elderly and declines in tax revenues. This scenario will play out even if defense and international needs are modest. Temporary deficit financing can delay the day of reckoning very little since borrowing against the future only compounds today's problems.

One part of the problem is that few children's programs are slated to grow automatically like other entitlement and tax programs in the budget. As a result, they face shrinkage when federal deficits are tackled. Think of the federal budget process as a poker game with a house rule entitling a select list of players to most of the winnings. Children would not be on that list.

Who are the lucky players? Current law promises that the typical couple retiring today will get a government-paid insurance package worth about $600,000, while those now in their early 40s will retire with about $1 million. Federal spending on children pales beside such figures, and the political debate reflects that fact. Compare the annual budgetary debate over funding the popular child development program Head Start with the tacit approval of growing Social Security obligations and payments.

Add in the tax cuts, and the discretionary budget for children becomes a leftover in the annual appropriations process.

Consider this trade-off from a lifetime perspective. The federal government promises citizens born today very little in their early years, when an investment might have a big payoff. However, to those who grow up and enter the workforce, the government promises subsidized consumption and decades of supported retirement when they are older. Is this a wise trade-off?

A Budget Primer
Outside of interest paid on debt, U.S. spending can be divided roughly into two parts: (1) defense and international affairs and (2) domestic programs. Within the latter are Social Security, Medicare, and Medicaid, and other domestic outlays. This last, rather dry-sounding category consists of programs for children, welfare, education, the environment, community development, housing, energy, justice—the very programs that touch working families—lives and reach most Americans.

When one program or category grows, a smaller share is left for the others. Today, close to half of total spending outside defense and debt service goes to the elderly. Social Security has been the single biggest federal program since 1993, when it surpassed defense. Medicare is growing so rapidly that it will eventually overtake both defense and Social Security, and that's not counting the new prescription drug program. When these programs rise from 50 percent to 70 percent or more of federal spending, for instance, then everything else must fall from 50 percent to 30 percent or less of the budget.



The portion of federal domestic outlays dished out for kids has already been shrinking for three decades. True, such means-tested entitlements as the earned income tax credits (EITCs) and Temporary Assistance for Needy Families (TANF), which are largely welfare-oriented and limited by income level, were spared the ax. But even these programs declined as a share of domestic outlays, as elderly programs grew inexorably. Now there are fewer other domestic programs to cut back, and even means-tested programs for kids will undoubtedly bear some of the coming deficit-reduction pain.

Tax-Cutting and Spending Spree
A slowdown in the Medicare growth rate and an unexpected rise in revenues gave government programs for children some breathing room in the mid-to-late 1990s. But this reprieve reflected a host of factors unlikely to converge again soon: a soaring stock market, high capital gains, and increases in average tax rates.

It took only a modest economic downturn and a more realistic assessment of technology stock values for the unexpected revenue windfall to evaporate and a revenue shortfall to set in. Disregarding the downshift, Congress continued on an extraordinary tax-cutting and spending spree, ranging from large tax cuts in 2001, 2002, and 2003 to a loosening up on Medicare-cost constraints. Expenditures rose relative to revenues by $800 billion, or 7 percent of Gross Domestic Product for fiscal year 2004 alone.

Maintaining the promises embedded in recent tax cutting and spending expansions makes the already scheduled squeeze on other domestic spending even more immediate and untenable. If the budget simply were to be balanced, recent tax cuts and spending increases made permanent, and defense spending held about where it is as a percentage of national output, then commitments to elderly programs, defense, and the added interest costs from the new deficits would wipe out all other domestic outlays by 2011. Even prior to tax cuts and legislation passed since 2000, the budget quagmire inherited from the past century would have wiped out programs for children by 2041.

It's Political
While the budget squeeze may appear ominous, the problem is mainly political, not economic. This political course can be altered.

No natural law requires us to retire for nearly one-third of our adult lives. We don't have to receive close to $1 million in aging benefits per couple. And we don't have to maintain federal revenues at their lowest level since 1950. Programs for children are suffocating mainly because they lose out to such political wants as retirement in middle age and low taxes.

In this milieu, children's activists should closely follow budget and economic analysis. Activists can work to develop a legislative and budget process that no longer places programs for children at a disadvantage when the nation's abundant, yet finite, resources are allocated.

Resources

• More articles by Eugene Steuerle are located on the Urban Institute Web site.

• The Urban Institute's budget crisis at the door offers more details on the unsustainable growth in Social Security, Medicare, and Medicaid spending.

Eugene Steuerle, a Senior Fellow at The Urban Institute, also co-directs the Urban-Brookings Tax Policy Center. This brief is adapted from "The Incredible Shrinking Budget for Working Families and Children," National Budget Issues No. 1, Washington, DC: The Urban Institute, December 2001.