Fixing the child care penalty

Child care by Shutterstock

Article Highlights

  • This uneven treatment keeps parents, particularly women, out of the work force.

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  • Average annual costs for an infant and a four-year-old child in a child care center ranged from $9,000 in Mississippi to $28,000 in Massachusetts in 2012.

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  • The current tax treatment of child care costs contradicts the basic economic logic of how tax systems should treat work-related expenses.

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The current tax code denies families appropriate tax relief for work-related child care expenses. A new Senate bill would help correct this problem.

Earlier this week, five senators, Jeanne Shaheen (D-NH), Patty Murray (D-WA), Barbara Boxer (D-CA), Kirsten Gillibrand (D-NY), and Barbara Mikulski (D-MD), introduced S. 2565, the Helping Working Families Afford Child Care Act. The bill would take a big step towards neutral tax treatment of working single parents and two-earner couples by expanding the child care credit.

Under basic tax policy principles, workers should be allowed to deduct the expenses of earning the income on which they are taxed. Child care meets the economic definition of a work-related expense — parents are less likely to work when child care becomes more expensive. The link between child care costs and work decisions is supported by more than just common sense. It has also been consistently confirmed by a wide range of statistical studies, as I and my colleagues Aparna Mathur and Abby McCloskey have explained.

Unfortunately, the federal tax code does not provide proper treatment for child care costs. The payroll tax system fails to offer workers any child care tax relief at all. The income tax system includes a tax credit for child care costs, but it falls far short of what is needed.

Read the full article at The American.

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About the Author

 

Alan D.
Viard

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