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Kids could be the budget bill's big winners -- or losers

Kids could be the budget bill's big winners -- or losers

Posted: Oct 12, 2021 12:21 AM
Updated: Oct 12, 2021 12:21 AM

President Joe Biden and congressional Democrats are poised to channel historic investments into programs for kids -- if they can navigate around competing demands, particularly from programs for seniors, as they slim down the massive public investment and social safety net bill now under intense negotiation on Capitol Hill.

The distribution of spending between young and old -- though almost totally overshadowed by the internal party disputes about the package's total cost -- constitutes one of the most consequential policy and political choices facing Democrats as they labor to finish the massive plan. The bill offers them a unique opportunity to confront one of the federal budget's most glaring inequities: the generational imbalance between programs aimed at kids and those directed at seniors.

The budget proposals Democrats are debating would provide the largest increase in federal investments into young people -- from child care, nutrition and early education to tax breaks for parents -- since at least the Great Society during the 1960s, experts say.

"We've never done anything like this on a sustained basis," says Julia Isaacs, a senior fellow at the nonpartisan Urban Institute and co-author of Kids' Share, an annual study of federal spending on children.

That infusion of new spending would dilute the gray tint in the federal budget, which now spends about $6 on every senior for each dollar it spends per child, according to the Kid's Share reports. But advocates worry that the proposed new programs for young people will get squeezed by other priorities -- particularly new benefits for the elderly under Medicare and Medicaid strongly supported by the party's left -- as Democrats shrink the spending package to satisfy the objections of moderate Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, as well as some House centrists.

"There's no question the initial Biden proposal had a lot of great investments in kids and families that would be ... forward-looking," says Ben Ritz, director of the Center for Funding America's Future at the Progressive Policy Institute, a centrist Democratic think tank. "It's a question of whether they survive the process. I think there is a real risk of taking our eye off the ball."

This debate represents another front in the ongoing struggle for control of the country's direction between what I've called "the brown and the gray": the younger generations of millennials and Gen Z, which are the most racially diverse in American history, and the preponderantly White baby boom and older generations.

Those diverse younger generations (who gave Biden about three-fifths of their votes in 2020) clearly represent the Democrats' future, but seniors remain more reliable voters today. At a $3.5 trillion price tag, Democrats had so much money to allocate that they could lavish spending on both of those huge voting blocs. But with the plan shrinking, Democrats will need to choose, in difficult ways, between supporting the younger generations moving toward them electorally and trying to woo back the older generations, which have drifted toward the GOP through the 21st century.

Nearly $1 trillion in new spending for kids?

As Democrats work to reduce the package, they are exploring many strategies, including phasing in (and phasing out) programs over the 10-year reconciliation budget window to save money and imposing more means-testing on programs to either exclude upper-income families from the benefits or charge them more for the services.

But most analysts agree those approaches are unlikely to cover the full distance between the original $3.5 trillion cost and whatever final number the party might agree on. Eventually, Democrats will need to make tougher decisions about where to target the spending.

"The people who framed the $3.5 trillion reconciliation bill live in a world without tradeoffs," says Will Marshall, the Progressive Policy Institute's president. But now, he adds, "you have to set real priorities."

One of the toughest choices will center on spending aimed at children and spending targeted at seniors.

Both Biden's budget proposal and the $3.5 trillion version of reconciliation Democrats have put forward include a huge increase in funding for programs aimed at children. Defining exactly what is considered funding for kids is more art than science, but experts cite at least four programs in the plan that would unequivocally qualify:

  • A new universal preschool program for all 3- and 4-year-olds.

  • New spending to improve the quality and availability of child care.

  • A big increase in federal funding for child nutrition.

  • Two big tax credits for families -- the Child Tax Credit and a tax credit to help families cover the costs of child care.

Adam Hersh, a visiting economist at the left-leaning Economic Policy Institute, calculated in a recent paper that these four categories in the original plan would produce almost $1 trillion in new spending over the next decade, with the two tax breaks contributing about half of that.

"The child care and early learning and development have traditionally been left by the wayside" in federal spending, Hersh says. "There is a real effort to build out those kinds of programs that I see in this agenda in the ways that other advanced economies do, which enable high participation in the labor force along with all the benefits that accrue to long-term economic growth to investing in early childhood learning and development and family cohesion. Economists have long known this is really the secret sauce in investing in economic growth: investing in people."

And that doesn't encompass all the spending that could be defined as boosting kids: Analysts note that young people would also benefit from proposals in the package to increase the availability of public housing and to create a system of paid family leave for parents. Though not directly affecting children, proposals to expand health care coverage to more working-age uninsured adults -- particularly in states that refused to expand Medicaid eligibility under the Affordable Care Act -- would benefit kids by providing more security for families.

Investing in today vs. tomorrow

To say that even the core programs under consideration would represent a quantum leap in federal spending on kids would be an understatement.

The federal response to the pandemic, particularly the expanded child tax credit approved on a temporary basis, did provide a new surge of funding for kids, Isaacs notes. But the long-term trajectory, under the programs authorized pre-pandemic, was for virtually no growth in spending on children, Isaacs and her colleagues calculated in their latest Kids' Share report. That report projected that programs for children would receive only 2% of the projected total increase in federal spending during the 2020s. In fact, Isaacs says, the study projected that the only kids-oriented program that would receive more funding during the coming decade was health care, because of rising medical costs; other programs for kids would see almost no growth. "We were going to spend more on Medicaid but we weren't investing more in any other area," she says.

Heather Boushey, a member of Biden's Council of Economic Advisers, said an interview that channeling more money into child care, early education and other programs aimed at kids would improve the workforce both in the near and long term.

Providing more help for kids, she said, would make it easier for more parents, particularly women, to participate in the labor force today.

"We used to lead our economic competitors in women's labor force participation ... and yet that has now fallen markedly, alongside the long-standing decline in male labor force participation," Boushey said. "One of the reasons, we know from empirical research, is other countries support families with children and the United States does not."

At the same time, providing more help for kids will enhance the skills and labor force participation of tomorrow's workers.

"I feel like I can fill my office with research studies that show investments in those first few years of life matter to future well-being," Boushey continued. "Setting aside whether we care about how much someone enjoys their life, just looking at someone's labor force participation, employment and earnings, we know that young children who have access to higher quality care [do better as adults]. ... That has direct economic effects on our labor force of the future."

Despite such arguments, spending on kids has traditionally been something of an afterthought in the federal budget.

While spending on children was projected to consume only 2 cents of every new dollar in federal spending through the coming decade, the Kids' Share report projected that spending on Social Security, Medicare and Medicaid would take fully 71 cents. (Rising interest on the federal debt will account for much of the rest.) The Congressional Budget Office has similarly estimated that under current law, federal entitlement programs, centered on that big three, will rise from consuming about 70% of federal spending in the 2020s (apart from interest payments on the debt) to 75% in the 2030s.

That sharp tilt in federal spending toward the elderly reflects an informal, but enduring, policy consensus, Isaacs says. "The historic way of funding retirement and health programs for seniors is federal, and schooling" and other programs for kids "is primarily state and local," she says. "We made this historic decision years ago and didn't realize that the net result was going to be so much more security for the seniors and insecurity and underinvestment in kids." While the federal government spends about $6 on seniors for every dollar it spends on kids, the imbalance in public spending comes down to about $2 on seniors for each dollar on kids when state and local spending is included, Isaacs notes.

Expensive new senior benefits

The huge sums of future spending that are already earmarked for retirement programs -- because of the growing elderly population and rising medical costs under Medicare and Medicaid -- loom over the two key elements of the original reconciliation plan targeted to seniors. One is an expansion of home health care services under Medicaid; the other is an expansion of Medicare to add dental, hearing and vision benefits. Biden has sought $400 billion over 10 years for the expanded home health care services, while Hersh puts the 10-year cost of the new Medicare benefits at about $260 billion. But that figure reflects proposals by congressional Democrats to phase in the program slowly; the CBO has calculated that once the benefit is fully available it will cost about $84 billion a year -- or nearly as much as the annual cost of all the core spending proposals for kids.

The most ardent advocates for that benefit expansion have been liberals, led by Sen. Bernie Sanders of Vermont, an independent who caucuses with Democrats and who many believe wants to incorporate more benefits into Medicare as a steppingstone toward an eventual single-payer "Medicare for All" system. They justify the new spending in part by noting that it could be offset by the substantial savings Medicare could achieve by negotiating for lower prescription drug prices, another cornerstone of the original budget plan facing resistance from some congressional moderates.

But more centrist Democrats and fiscal analysts question adding such an expensive benefit to Medicare when its costs are already projected to rise substantially.

Asked if the federal government can afford such a new benefit, Ritz says, "We think the answer to that question is no. I think there should be a discussion about how we address some of the unmet senior needs, but that needs to be taken in the context of the unsustainable growth of those programs already."

Another factor in the argument: Slightly more than half of Medicare recipients already receive dental benefits, mostly through various forms of private insurance, according to a recent study by the nonpartisan Kaiser Family Foundation.

Rethinking a historic division

This debate is unfolding against a momentous demographic milestone: The 2020 census found that kids of color composed a majority of Americans 18 and younger for the first time. Not only is the share of White kids declining, but so is the absolute number: 48 of the 50 states had fewer White kids in 2020 than in 2010, according to calculations by William Frey, a demographer at the Brookings Institution's Metropolitan Policy Program. That means today's minority children, who tend to have poorer outcomes in educational attainment and adult earnings than White children, will make up a larger share of tomorrow's workers and consumers.

Many of those young people are being reared in red states across the Sun Belt that spend relatively less money on services for children, including education and health care, Frey and other analysts note. To advocates for children, that tension reinforces the case for rethinking the historic division of Washington focusing on seniors and states primarily funding educational and other services for kids.

"We've been trying that way of doing things for some time, and it makes for huge variations across the states," Isaacs says. "We are discovering it results in less-than-ideal investments in children and much less than in European countries. So I think it's exciting to see that we are moving into the 21st century and deciding we need to invest in children at the federal level."

Similarly, Boushey argues, "It's a national economy. We are not 50 countries; we are one nation with one economy. Making sure that we are making these investments in our people, who are free to move across states as they grow up, it's in the national interest. It's our national interest to make sure we have a well-cared-for and well-prepared national workforce."

Whether those proposed investments in kids survive the jostling as Democrats try to complete the package is far from certain. Rep. James Clyburn of South Carolina, the House Democratic whip, has emerged as a vocal advocate for tilting the package toward young families, but Democrats are keenly aware that seniors, who leaned slightly toward the GOP overall in 2016 and 2020 (with Trump amassing much wider margins among White seniors), turn out to vote at higher rates than any other age group. Even supporters acknowledge that both programs for seniors will take cuts in the negotiations, but it remains unclear whether programs for kids will face even greater reductions. Sen. Manchin of West Virginia, a state where seniors compose a higher share of the population than all but two others, has reportedly told colleagues they must choose among the expanded child tax credit, child care spending and paid family leave: He will vote for only one of those three.

The irony is that seniors, about three-fourths of whom today are White, have a direct self-interest in investments that would help more of the increasingly non-White youth population reach the middle class. Those kids of color are the future workers whose payroll taxes will fund Social Security and Medicare for retirees, and if fewer of them achieve stable earnings, the financial pressures on those two retirement pillars will only intensify.

The competition between spending on seniors and spending on children may seem like a zero sum tradeoff, but in the end there is no financial security for the gray without more economic opportunity for the brown.

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