Global Policy Forum

Cutbacks and the Fate of the Young


This article investigates the repercussions on the next generations of present cut backs on welfare spending such as healthcare and education- a policy adopted in the US and many other countries as part of austerity measures. Medical care costs for the elderly are increasing faster than the rate of economic growth, which means an even worse deficit for the future generation. The mountain of debt left behind coupled with cuts on welfare spending will undermine their ability to shoulder it when their time comes. The approach taken by the US presidential candidates to tackle the budget deficit issue is expected to have a huge influence on voters.

By Eduardo Porter

October 9, 2012

During the presidential debate last week, Mitt Romney reminded us that it is our children, and grandchildren, who will end up paying for our budget deficits. His comment about the immorality of passing on such a large bill is a welcome reminder that our generation bears responsibility for the well-being of the next.

But the nation’s growing debt is not the only threat to our children’s future. We need a broader debate about how to ensure that the next generation — the children of today and the taxpaying adults of tomorrow — have a fair shot at prosperity.

Right now, the next generation is getting shortchanged all around, with children too often treated as an afterthought in policies meant to appeal to their elders. The United States tolerates the highest rate of child poverty in the developed world. Yet federal expenditures on children — including everything from their share of Medicaid and the earned-income tax credit to targeted efforts like child nutrition and education programs — fell 1 percent last year and will fall an additional 4 percent this year, to $428 billion, according to estimates by the Urban Institute based on the Congressional Budget Office’s projections.

The federal government spent $8 billion less on child health last year than it did the previous year, as fiscal stimulus programs to combat the Great Recession were phased out. It cut aid to states to pay for primary education by about the same amount.

The states, which provide more than 60 percent of the total government dollars spent on children, aren’t in great shape either. According to the Urban Institute’s estimates, state and municipal spending on children fell in each of the last three years.

And the outlook is not much better for the coming decade. Despite health care reform, which will lead to coverage for millions of uninsured children, the Urban Institute forecasts that federal expenditures on children — including direct spending and tax breaks — will shrink to about 2.3 percent of the nation’s economic output by 2022, from 3 percent last year.

Children have needs besides sound fiscal accounts. Deprived childhoods lay the groundwork for future social ills. We have the third-worst rate of infant mortality among 30 industrialized countries and the second-highest teenage pregnancy rate, after Mexico. We’re in the bottom quarter of countries in terms of literacy. Unsurprisingly, perhaps, half of American children born to low-income parents grow up to be low-income adults.

Investing in children is not just a matter of fairness but of economic vitality. Early interventions to help disadvantaged children can have an enormous return. They improve children’s cognitive and social abilities. They promote healthy behavior. They increase productivity and reduce crime. Investing in education is about as good an investment as a society can make.

With all the concern about the next generation’s fiscal future, these investments are falling by the wayside. If Mr. Romney becomes the next president and delivers on his promise to cap federal spending at 20 percent of the nation’s economic product while increasing the defense budget, programs for youth are bound to shrink even below the Urban Institute’s estimates.

According to the Center on Budget and Policy Priorities, if Mr. Romney spared those 55 and over from any changes to Medicare or Social Security, as his campaign has promised, spending on everything else would have to be cut by more than $6 trillion from 2014 to 2022. The center did not specify how this would affect the young. But a repeal of health care reform would drastically reduce health benefits. The budget for Medicaid, which is the biggest federal program serving children, would be cut by almost $2 trillion over 10 years.

There is good reason to be worried about our long-term budget deficits. They are indeed projected to be huge — driven mostly by the growing health care spending of an aging population. Medicare will absorb about 6.7 percent of the nation’s economic output by 2037, up from 3.7 percent today, under the most likely situation laid out by the Congressional Budget Office.

Though President Obama and Mr. Romney acknowledge the American economy can’t afford that, they have each devoted a big chunk of their campaigns to convincing seniors that their benefits will not be compromised. Social Security and Medicare “are bedrock commitments that America makes to its seniors,” President Obama said in a speech to the AARP last month. The Republican vice-presidential candidate, Paul Ryan, told the same gathering, “Medicare is a promise, and we will keep it.” The generation whose taxes will be footing the bill in 2037 doesn’t get the same type of commitment.

Isabel Sawhill, a senior fellow at the Brookings Institution and a co-director of its Center on Children and Families, argues it is time to reconsider the intergenerational deal that has held since Social Security’s inception in the 1930s. The assumption behind it was that working-age Americans could support their children and every senior would be able to retire at age 65.

Today, this compact is under strain. Health spending has skyrocketed while middle-class wages have failed to keep up with the cost of living. The old are living longer and collecting more benefits than before. Even under new measures of poverty that account for seniors’ high medical spending, poverty rates among children have surpassed deprivation among the old. Seniors, Ms. Sawhill suggests, could shoulder more costs so that more of the money from working Americans could be devoted to the young.

There are ways to do this while still protecting the most vulnerable seniors. Social Security benefits could be indexed to slow their growth for high-income seniors. Wealthier retirees might bear a larger share of their medical expenses. The retirement age could be raised.

The challenge isn’t going to get any easier as we keep aging and medical costs keep rising faster than economic growth. But so far the presidential candidates have stopped short of any fundamental change to the longstanding generational compact.

Mr. Obama proposes to address the problem by raising taxes on the rich. He hopes the Affordable Care Act can wring a lot of excess from our health care system — reducing Medicare costs along the way. The plan is likely to come up short, however. The efficiency gains remain hypothetical. And while raising more money from high-income Americans is a first step, most economists believe that to avoid cuts in health benefits the government must raise taxes on the middle class.

Mr. Romney’s plan could be more radical: replacing Medicare with vouchers for Americans to buy health insurance and capping the vouchers to control spending directly. But he has already said he would exempt most of the baby boom generation from his reforms. And he has been careful not to disclose any details — repudiating earlier proposals from his running mate that would have raised how much seniors pay out of pocket, fearful of an intense reaction.

If the next generation is going to be handed the bill for our budget deficits, we might as well make the investments needed to help it bear the burden. So far, we seem on track to bequeath our children a double whammy: a mountain of debt and substantial program cuts that will undermine their ability to shoulder it when their time comes.


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