FIGURE 10 Historical Spending Trends on Children and the Introduction of Major Children’s Programs and Tax Provisions, 1960–2009
Percentage of GDP
Tax Expenditures Refundable Tax Credits Federal Programs
Source: The Urban Institute and The Brookings Institution, 2010. Authors' estimates based on the Budget of the U.S. Government Fiscal Year 2011 and past years.
Special Education; EITC
Child Care Entitlement to States; Child Tax Credit
credit in 1986, 1990, and 1993, along with the creation of the child tax credit in 1997. These expansions have occurred, however, against the backdrop of a large decline in estimated expenditures associated with the dependent exemption. The decline was particularly dramatic between 1960 and 1985, but it has continued since then (figure 10). In fact, the combined value of all tax provisions affecting children (refundable tax credits, tax expenditures, and the dependent exemption) is lower in 2009 than it was in 1960 (1.0 percent
of GDP compared with 1.3 percent).
The long-term decline in the dependent exemption should be interpreted with some care. Some of the de- cline reflects the eroding value of the exemption amount, which remained a flat $600 from 1948 to 1969 and was not indexed to inflation until after 1984. However, some of the reduction in expenditures on the dependent exemp- tion results from overall reductions in tax rates. Since the dependent exemption reduces taxable income, its value is dependent on the tax rate facing the taxpayers claiming the exemption. Thus, the dependent exemption provides less of a benefit to low-income families than to higher-income families, and it provides less of a benefit when tax rates are reduced across the board, as occurred in 2001.15
Over the past half-century, spending on children has gradually shifted from providing cash payments, which are paid to parents or other relatives on behalf of children, to providing in-kind benefits (such as housing and nutrition benefits) and services provided directly to children (e.g., education and health services). The expansions in educa- tion, Medicaid, and Supplemental Nutrition Assistance in
2009 accelerated this trend further. Some of the decline in cash payments to parents has been offset by an increase in refundable tax credits—principally the EITC, which also provide cash payments, though annually rather than monthly (figure 11).
Another long-term trend is a shift toward spending on programs that are means tested—that is, targeted to low- income families. Back in 1960, the majority of children’s expenditures were on benefits available to families across the income spectrum; for example, Social Security and the dependent exemption. The focus of children’s spending changed during the 1960s and early 1970s, when new federal programs such as Medicaid were introduced to serve low- income children. By 1985, a majority (61 percent) of total federal expenditures were on means-tested programs—that is, programs available to families below a certain level of financial means (figure 12). The share of expenditures on means-tested programs continued growing in the early 1990s, reaching a peak of 71 percent in 1995 and 1996 fol- lowing the expansion of the EITC and SSI payments to disabled children. The trend reversed in the next dozen years, with the share of means-tested programs and tax dropping back to 63 percent in 2008 (due partly to the expansion of the child credit, which—because it is phased out at fairly high income levels—is not counted among means-tested
Largely as a result of the recession and
the expanding use of public health care coverage for a wide range of children in lower-income working families, means- tested spending grew again in 2009, accounting for 66 percent of all expenditures on children.