Sen. Katie Britt (R-AL) is right in saying there is a family crisis in America, but the legislation she proposed is the wrong one to fix it.
The United States has record-low and falling birth rates because young adults are getting married later and less. This deserves attention from Congress, but the wrong solution could make matters worse while adding to our budget deficit.
Britt, with Sen. Tim Kaine (D-VA) and two House members, is co-sponsoring two misguided bills. The Child Care Availability and Affordability Act and the Child Care Workforce Act are day care subsidies. They subsidize only one model of caring for children (two earners combined with institutional day care), and they are large subsidies to the child care industry rather than to parents.
Britt and other Republicans should avoid this Democratic approach and instead favor an approach that is better for families and helps all parents, including those who find ways to look after their children other than by putting them in day care.
Rather than increasing subsidies for child care, as Britt’s bills would do, Congress should end those tax credits and fold their value into a larger child tax credit.
Parents currently can get a 35% tax credit on their first $6,000 of child care expenses, which is a $2,100 credit. The Britt-Kaine bill would increase this to pay for $2,500 of child care or $4,000 for families with two or more children in child care.
Britt’s bills would increase tax breaks for employees who receive child care as an employment benefit. They would also indirectly (through state governments) provide wage subsidies to child care workers.
Helping families is good, but these tax breaks help only some families while ignoring others.
If a couple decides that one of them will become a full-time parent, they get nothing from these child care tax breaks. If a family wants to convert their garage into an in-law suite so that a grandparent can look after the children, they get nothing. If a family sets up an informal neighborhood child care co-op, with other parents bartering child care and occasional teenager babysitting, they get nothing from Britt or Kaine.
Even those who pay for child care might not be eligible for the tax breaks Britt and Kaine are expanding. If a homeschooling mother pays for regular child care for a baby and toddler so she can teach reading and math, she is not eligible for any of those child care tax credits, which are available to those who pay for child care so they can occupy their days with working paid jobs.
If a stay-at-home mother wants a nap, a trip to the store, or time to take a community college class, she also does not get help paying for child care. Similarly, if a father needs a nanny to visit his wife and their baby in the hospital, that is excluded from the benefit as well.
The point is not that more and more forms of child care should be subsidized. Working parents can already get a tax credit for tennis camp in the summer. The right course of action is to end all tax breaks for child care and fold their value into increasing the child tax credit.
The child tax credit was set at $2,000 in 2018 and has lost 22% of its value to inflation over seven years.
To restore its original value, Congress would have to boost the credit to $2,550. To maintain that value, it would need to be indexed to inflation. Budget deficits and the national debt make that difficult.
But we could get more than a quarter of the way there if we stopped subsidizing child care and started supporting children.
The Treasury Department estimated that the child care tax credit will reduce revenues by $3.9 billion this year. Tax breaks for employer-sponsored child care add up to another $930 million. Congress could convert that $4.8 billion of tax breaks into another $150 in child tax credit, closing the gap between the original value of the Tax Cuts and Jobs Act and its current inflation-diminished value.
Alternatively, Congress could improve the child tax credit for younger children. Many parents make their most costly financial sacrifices when children are young. They either give up paid work or pay for professional child care, so there is an argument for a larger tax credit for children aged 12 and under or 5 and under.
Some Democrats would reject this deal out of hand. They explicitly demand subsidies for the child care industry, and their vision of feminism allows no room for stay-at-home mothers or for grandmothers as babysitters.
Only a minority of parents prefer that both mother and father work while leaving their children in child care. Congress should not use the tax code to force that model on everyone. It is more popular among the wealthy than among the middle class or working class, and Congress should not favor the rich over the poor.
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Finally, the Britt-Kaine bill would subsidize the demand for child care. This has never been a good way to make things more affordable, as the costs of housing and colleagues have shown over the past two generations.
Families need relief from the tax code. Massive tax breaks narrowly targeted to favor day care are one of the least efficient and least fair ways to do it. Let parents keep more of their earnings, regardless of how they care for their children.