Discussion: (2 comments)
Comments are closed.
More options: Share,
Editor’s note: The next president is in for a rough welcome to the Oval Office given the list of immediate crises and slow-burning policy challenges, both foreign and domestic. What should Washington do? Why should the average American care? We’ve set out to clearly define US strategic interests and provide actionable policy solutions to help the new administration build a 2017 agenda that strengthens American leadership abroad while bolstering prosperity at home.
What to Do: Policy Recommendations for 2017 is an ongoing project from AEI. Click here for access to the complete series, which addresses a wide range of issues from rebuilding America’s military to higher education reform to helping people find work.
We are three mothers who have experienced firsthand the challenges of balancing work and family, including time off after childbearing and finding affordable, high-quality child care. We are also social scientists who believe in work as a path to economic opportunity, and have analyzed the implications of leave and child-care policy for the economy and American families. In our personal experiences and scholarly work, we see a policy environment that has missed significant opportunities to support families and foster economic growth. Conservatives in particular have been slow to realize the benefits of these policies, but 2017 offers the GOP a huge opportunity to change that.
Currently, the federal government has a patchwork of policies to help offset child-care costs. Some, such as The Child Tax Credit and Earned Income Tax Credit, are intended to offset costs associated with childrearing more broadly. Others, such as the Child and Dependent Care Credit, specifically offset child-care expenses, meaning costs for the care of a child while the parent works or goes to school. In addition, through block grants to states, the federal government subsidizes care for low-income families. Our estimates suggest that the government spends approximately $16 billion per year on child-care assistance, not counting what is provided through the Child Tax Credit and Earned Income Tax Credit.
Even with such large public investments, this system of child-care assistance is largely inadequate. It transfers large chunks of money to those who are better off rather than targeting them to those who need them the most. In doing so, it fails to realize employment gains for families who would benefit the most from work income. The reason for this is that the tax credits are either non-refundable, like the Dependent Care Credit, or only partially refundable, like the Child Tax Credit. This means that for the bottom 40 percent of households without a tax liability, there is no direct cash transfer to help offset child-care expenses. The EITC is much better targeted toward low-income households and is refundable, but it is not directly linked to child care expenses and is dispensed in a lump sum toward the end of the year, which limits its usefulness in meeting the daily costs of child care or even the monthly expenses associated with center-based care.
The Child Care Development Fund (CCDF) offers more options for low-income families and those on welfare, but it has limited reach. Some estimates suggest that, due to funding limitations, the CCDF only serves 12–15 percent of eligible families and 40 percent of poor families (those under 100 percent of the federal poverty level). And questions remain about the quality of care those that are served receive, and how well subsidized care meets the realities of today’s labor market, which increasingly functions outside of regular business hours.
The inadequacies of this system coincide with rising costs. Child-care costs have grown significantly over the last several decades. According to Child Care Aware of America, child care is “unaffordable” in 49 states, often exceeding the cost of tuition, housing, transportation, or food. A survey by Pew Research Center reinforces these findings, revealing that child-care costs average 7 percent of income for high-income households but almost 40 percent for low-income families.
The lack of reliable, affordable child care is driving many families to choose lower-quality informal sources of care over formal day-care centers, or to avoid working altogether. Both decisions can have dire consequences for the health and well-being of lower-income American families.
Solutions offered by Democrats include increasing access to child-care assistance for families no matter their economic circumstances. One proposal would cap child-care expenses for families at 10 percent of their income. This would create perverse incentives for families to seek the most expensive care, while violating principles of fiscal responsibility and threatening to further increase child-care costs.
Offering a different approach, recent Republican proposals favor tax deductions for children, some not necessarily linked directly to child-care expenses, which could be used to offset such expenses. The problem with deductions is that they would be yet another tax benefit for high-income families, while providing no help to those lower-income households who already have no federal tax liability. Expansions of the Child Tax Credit or Earned Income Tax Credit, as proposed by Republicans, would go to all eligible families with children, even those with a stay-at-home parent and no child-care expenses. Of course, concern that any child-care assistance unfairly favors working parents over those who stay home is valid. But tax preferences for stay-at-home parents should not be confused with child-care assistance, the main purpose of which is to offset expenses that permit work for those who choose it. For child-care assistance to meet the principles of supporting choice and fiscal viability, it needs to be narrowly targeted to those families that actually have child-care expenses related to a working parent.
Some may still view child-care assistance as unfair to stay-at-home parents, but it actually offers more choice than the status quo. It is important to remember that for most families, the decision for a spouse to stay home or work is not in fact a choice: When polled, a significant number of low-income mothers reported that they would like full-time jobs in order to support their families better. It is also critical to remember that many of the wage-supplement programs, as well as cash welfare, that are available to low-income households are contingent on work, a conservative ideal. If work is truly the path toward economic security and upward mobility, policies that allow individuals to remain in the workforce are key. Child-care assistance is one policy that research consistently shows increases employment among low-income populations.
Another critical issue is paid family leave. While the federal Family and Medical Leave Act allows individuals unpaid leave at the time of the birth of a child or an adoption, or in order to care for oneself or family when illness strikes, no federal paid-leave policy exists. States are thus experimenting with their own plans for providing paid leave. California has had such a program since 2004. New Jersey, Rhode Island, New York, and the District of Columbia have since followed suit. Research on existing state programs suggests that parents are more likely to return to work post-birth when they have access to paid leave at the time of birth, and that such leave promotes the health and well-being of both mother and the child.
While state programs have helped families to feel comfortable taking leave when needed, they have also been insufficient in many other ways. Many parents are unable to take the full allowable leave, and return to work before their health or the health of their child permits because they are afraid that they will lose their jobs. The amount of wage replacement is also low enough that many are unable to make ends meet at a time when their expenses are high. Other workers are simply unaware of their eligibility for leave, and get by using up vacation and sick days to care for their newborn child, leaving them vulnerable when their own health or the health of their child warrants a sick day. The problems that arise from an inability to take leave are compounded by the lack of good, affordable child care. Much more attention needs to be given to the design of policies, both at the state and federal levels, which allow working parents to contribute and remain productive at their jobs once their need for time off from work is over.
Legitimate questions remain as to why the government, and not the private sector, should take the lead in crafting and implementing such policies. But the ideals of a free market are not in conflict with the values of helping those who are the least well off in a way that encourages economic independence and family well-being. Certainly, some are served well by the private market. They can save for time off to care for a child, and they can afford adequate child care or choose to stay home and not work. But the most vulnerable, whom we encourage to work and become self-sufficient, are largely left without assistance. For these families, a lack of paid leave can result in returning to work too quickly after giving birth or never returning at all, and a lack of affordable child care can mean the difference between economic independence and unemployment.
On both fronts, we propose a new way, which involves fixing the existing system first before layering new programs on top of it. Three key principles govern our views on the role of government in providing paid family leave and child-care assistance. First, we believe in creating more choices for families. Second, we believe any reforms should be designed in a way that is fiscally responsible, given current budget constraints. Third, we believe that assistance should be targeted to those who need it most — those for whom the lack of paid leave and the high cost of quality child care are actually barriers to employment — with the aim of promoting economic independence and upward mobility. The current system of tax credits and many of the current proposals from Republicans and Democrats fail on one or more of these fronts.
The core of our child-care-assistance proposal is to make the Child and Dependent Care Tax Credit refundable for low- and middle-income families, to index the credit to inflation in child-care costs, and to provide it monthly or quarterly to allow parents the ability to secure child care and return to work. Presumably, this would reduce the need for government subsidies through the CCDF, since these same families would now be eligible for refundable tax credit, and it would also reduce the need for the employer-sponsored tax credits, from which some savings could be incurred. Importantly, this benefit structure should be paired with an examination of child-care regulations, which often limit the supply of care and increase its price without improving its quality. Our proposal would increase flexibility for parents who want or need to work, and would be both fiscally responsible and targeted to those most in need.
For some, talk of child-care support may conjure up images of children being shepherded to institutional daycares run by the government. This would not be the case. The refundable tax credit could be used to pay for caregiving of the parent’s choice, including nannies, pre-schools, and private child-care facilities. Such a reform could easily be incorporated and paid for by a broader tax overhaul that modernizes how we treat work and family. For example, in the 21st century, it may make more sense to help families improve their economic prospects by reducing the costs of work than it does to deduct interest paid up to $1 million on mortgages on first and second homes.
We would also propose that serious consideration be given to a federal paid-leave policy. States have been slow to adopt such policies, even though the benefits to family prosperity and well-being are clear. And private business, while instituting policies that help some, has largely failed to meet the needs of the most vulnerable. Moreover, the current patchwork of policies across states and employers leads to a non-uniform and distortionary structure of benefits. Employees may be making decisions about where to work based on the availability and generosity of these policies, and businesses that offer these policies may have an easier time recruiting and retaining talented workers than those that are unable to offer these policies. A uniform federal policy, available to all employees regardless of which state or employer they choose, would help prevent this type of job-lock.
The benefits of these policies for the economy and workers are clear. What’s more, they align with conservative principles and priorities. Conservatives tend to value family, pro-work benefit programs, and economic independence — paid-leave and child-care policies such as those proposed above are consistent with all three, and we would urge the incoming administration and Congress to consider supporting them.
Aparna Mathur is a Resident Scholar in Economic Policy Studies at the American Enterprise Institute. Abby McCloskey is the founder of McCloskey Policy LLC. Angela Rachidi is a research fellow in poverty studies at the American Enterprise Institute.
Comments are closed.
A newsletter highlighting work on poverty—and efforts to reduce it—from AEI’s Poverty Studies team.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2019 American Enterprise Institute