Federal investments in children have enormous payoffs not only for children but for society and the economy. Research shows tax credits and safety net programs for families improve children’s education, health, and employment outcomes. They also decrease reliance on public programs in the long term.

Despite these benefits, federal spending on children relative to the size of the economy is projected to decline over the next decade. Though the US economy is expected to grow, our analysis shows that federal investments in children will not keep pace. This decline will be even more severe if Congress enacts the spending cuts in the House of Representatives’ FY2025 budget resolution.

Spending on Children Will Decrease in Almost Every Category, Even as US Economy Grows

Percentage change in federal spending on children as a share of GDP, by category, 2019–34

Federal policymakers should instead commit to investing 2.7 percent of GDP in children (the 10-year prepandemic average). Congress could also set a goal to spend 1 percent of GDP on the three largest tax provisions that support families with children: the child tax credit (CTC), the earned income tax credit (EITC), and the personal exemption for children, if reinstated. Today, these provisions make up just 0.6 percent of GDP—about half the high-water mark observed in 1960.

Key Takeaways

Overall federal investments in children as a share of the economy are set to decline by 20 percent compared with spending levels before the pandemic. In 2019, public investments in children were about 2.4 percent of GDP. In 2034 they are projected to be about 1.9 percent.

Tax provisions and education spending will see the largest percentage declines, decreasing by more than 30 percent. The main driver of this long-term decline is that major tax benefits for children, the CTC, EITC, and personal exemption for children, are not tied to economic growth.

The maximum CTC does not increase with inflation. That means its value as a share of GDP tends to decline even faster than that of the EITC and other tax provisions that are adjusted for inflation.

Potential cuts to Medicaid in the FY2025 House budget resolution could blunt or even reverse projected increases in health spending and affect children’s long-term health. After federal tax provisions, health is the largest spending category for children, largely reflecting spending under Medicaid and the Children’s Health Insurance Program. This is the only area projected to see a modest increase (6 percent) between 2019 and 2034, as overall government spending on health care is expected to grow slightly faster than the economy.

Declines in education spending are projected to be steep (almost one-third). Spending on child care, social services, and housing is also expected to decline, by about one-fifth from prepandemic levels. This could leave young children less prepared to enter kindergarten and limit their educational attainment. When these children enter adulthood, they would be more likely to earn lower wages and have worse health outcomes, not only limiting their own thriving but also leading to a less productive economy.

How Policymakers Could Better Support Children and Families

Set an annual target for spending on children. Policymakers could set the target of spending 2.7 percent of GDP on children, to match the 10-year average prepandemic levels. Congressional committees could also set specific targets for programs in their purview. For example, the House Ways and Means and Senate Finance Committees could aim to invest 1 percent of GDP on tax benefits for children every year.

Ensure all tax benefits for children grow with inflation. Congress is considering extending the 2017 Tax Cuts and Jobs Act’s expanded CTC, which will expire at the end of this year. But the CTC is not adjusted annually for inflation, so its value as a share of GDP falls even faster than that of the EITC. To ensure the credit keeps pace with rising costs, policymakers could increase the maximum credit per child from $2,000 to $2,500 to account for recent inflation and then index the credit for inflation going forward. They could also modify the credit’s phase-in to ensure working families can access more of the full credit.

Continue investing in safety net programs with proven short- and long-term benefits for children. These investments pay off not only for individual children but also by increasing the productivity of the US economy.

How we did this

To estimate how investments in children will change as the economy grows, we look at spending on children (indexed for inflation) relative to real GDP, or the total value of goods and services (adjusted for inflation). This enables us to understand how spending on children is changing compared with the size of the economy after accounting for rising prices from inflation.