The Democrats’ child care proposal is deeply flawed

It could actually raise costs for many parents in the first three years.
The Democrats’ child care proposal is deeply flawed
(Photo by thedanw)

On Friday, the House of Representatives passed the Build Back Better Act on a near party-line vote. Every Republican voted against the bill, while all Democrats but one voted for it.

The package would spend $1.75 trillion over 10 years. Some of the spending—such as expanded subsidies for clean energy—makes sense to me. But I’m not enthusiastic about language that would create a new federal child care program.

I have three young children, so I’m acutely aware of the financial burden child care places on today’s parents. I would welcome a well-designed program to help parents with these costs. But the program Democrats actually passed is so poorly designed that it could actually make child care less affordable for many middle-class parents during the program’s first three years.

The program is also biased against stay-at-home parents. Subsidies are only available for those who send their kids to licensed day care centers. There’s no money to help parents care for their kids themselves, and the subsidies discourage parents from seeking informal care provided by grandparents or other relatives.

It would be better to take the money earmarked for the child care program and give it directly to parents. Or if moderate Senators balk at the high price tag of the overall bill, the child care program might be a good candidate to cut from the bill altogether.

You can’t raise wages without raising costs

Democrats are trying to accomplish two goals simultaneously: lower the cost of child care and raise the pay of child care workers. The challenge here is that child care is inherently labor-intensive. The federal government recommends there be no more than four children per adult caregiver for the first year of a child’s life. For kids between ages one and three, it’s six kids per caregiver.

This means there’s a fairly stark tradeoff between child care costs and worker pay. The wages of child care workers are the largest cost of any child care operation, so higher wages inherently means more expensive care.

And Democrats want to pay child care workers a lot more. The average child care worker earned $25,460 in 2020. The BBB Act seeks to raise their pay to levels enjoyed by elementary school teachers, who earned an average of $60,660 in 2020. So under the Democratic plan, the pay of child care workers would more than double.

Matt Bruenig, a left-leaning policy expert at the the People’s Policy Project, estimates that higher worker pay would raise the cost of child care for a typical family from $15,888 to $28,970—an increase of $13,082 per year, or more than $1,000 per month. A study of a similar proposal here in Washington DC reached a similar conclusion.

Advocates say there’s nothing to worry about, because these higher costs will be borne by taxpayers, not parents. Under the Democratic plan, parents’ out-of-pocket costs will be capped at 7 percent of their income. That means a family with a household income of $100,000 per year wouldn’t have to pay more than $583 per month on child care.

But many families will be excluded from subsidies for the first three years of the program. For fiscal year 2022 (which started last month), only families making less than their state’s median income (for a family of the same size) will be eligible for subsidies. In 2023 and 2024, the cutoff will be 115 percent and 130 percent of the median income.

This means that if you earn more than about $90,000 (the exact number depends on your state and how many kids you have), you probably won’t be eligible for any subsidies in the first year of the program. If you make more than about $120,000, you might have to wait almost three years.

During this period, the unsubsidized cost of child care will be rising rapidly thanks to federal subsidies, wage mandates, and other red tape. Families in the lower half of the income distribution will be protected from these increases. Higher-income families will not.

Among other problems, this seems like a big political risk for Joe Biden. Federal subsidies for higher-income parents are scheduled to finally kick in on October 1, 2024, a month before the 2024 election. That may not be enough time to convince upper-middle-class parents that they'll ultimately benefit from the program despite a rocky start.

The program’s future is uncertain

Under the House bill, the whole child care program is scheduled to sunset in 2027. Of course, advocates hope that won’t actually happen. They are betting that by 2027, the program will have developed a broad enough constituency—among both parents and childcare workers—to make it politically untouchable.

But this seems like a big gamble. The BBB Act passed the House without a single Republican vote. If Republicans control Congress or the White House in 2027, they might not feel any obligation to extend a program they had no hand in creating.

That’s particularly true because the program is designed as a partnership with states. To participate, states must pass implementing legislation and put up some money themselves.  It’s a safe bet that many Republican-leaning states won’t do this, just as many refused to participate in key parts of Obamacare. If child care subsidies overwhelmingly benefit people in blue states and blue cities, Republicans might see little downside in letting the program expire.

And that could be quite disruptive. If the program works as planned, child care workers will have their wages pushed well above current levels by 2027. Will child care providers’ pay fall back to today’s levels? Or will middle-class families have to shoulder permanently higher costs? It’s hard to say, but either outcome seems bad.

It is unfair to stay-at-home parents

Two-parent families face a basic choice: whether both parents should work or one parent should stay home to care for the children. The Democrats’ subsidies for child care put the government’s thumb on the scale  here.

Under the Democratic proposal, the lowest-income families would pay nothing for child care. Starting in 2024, most middle-class families would also pay a fraction of the full cost. That creates a big financial incentive for parents to work even if they’d prefer to stay at home.

Indeed, there will likely be cases where the federal government spends more on child care for a worker’s children than that worker is earning. If a worker making $60,000 cares for four children of low-income parents, then the program will cost at least $15,000 per kid. That’s about as much as a full-time worker earns making minimum wage. If a minimum-wage worker has two kids, the cost to taxpayers will be about twice as much as her wages.

In a situation like this, it might be better for everyone—taxpayers, the mother, and her kids—if the federal government just wrote the mother a check that would enable her to care for her kids herself.

For older kids, there are good reasons for the government to subsidize care outside the home regardless of parents' incomes. We all have an interest in ensuring the next generation gets a decent education. Even at the preschool level, kids may benefit socially and emotionally from interacting with other kids their own age.

But for the first two or three years of life, babies just need a lot of one-on-one love and attention. A parent or grandparent can provide care that is at least as good as they’d get in day care.

Just give people money

The fundamental problem with the BBB Act is that Democrats are trying to do too much with too little money. Left-wing stalwarts like Sen. Bernie Sanders (I-VT) originally envisioned the federal government spending as much as $6 trillion over 10 years. When moderates balked at this price tag, Democrats scaled it back to fit into a much smaller budget.

But rather than tossing out lower-priority programs and focusing on a few big ideas, Democrats put each individual program on a diet. That’s how we ended up with a half-baked child care plan that’s only partially funded between 2022 and 2024 and then evaporates in 2027.

A better plan would be to take the money Democrats have earmarked for child care and give it directly to parents. The Child Tax Credit (CTC) could be a good vehicle to do this.

The American Rescue Plan, which Joe Biden signed in March, expanded the CTC from $2,000 to $3,600 for children under the age of six. That was only a one-year extension, but the BBB Act would extend it for a second year.

Instead of setting up a whole new child care program, Democrats could redirect those funds to either making the CTC even more generous or extending it further into the future. That would let parents, not federal policymakers, decide how to spend money intended to help their kids.

Parents, of course, would have the option to spend the money on child care. But the flexibility of cash would enable parents to seek out more affordable alternatives, like asking a grandparent or other relative to help out with child care. Or the money could help parents to cut back on their working hours and care for their children themselves.

If the goal is specifically to help the lowest-earning parents, it wouldn’t be hard to tweak the CTC to provide larger benefits to lower-earning families.

On the other hand, if policymakers are specifically trying to help working parents and encourage low-income parents to stay in the workforce, they could do that by further expanding the Earned Income Tax Credit. As the name suggests, this is a tax credit that helps lower-income workers by subsidizing their wages. The BBB Act already expands the EITC, but with extra money they could increase the EITC still further.

This approach would not do nearly as much to raise the wages of child care workers specifically. But it’s not obvious why child care workers are more worthy of support than other low-paid occupations like school bus drivers, cashiers, or janitors. Raising their wages makes it more expensive to make child care affordable to everyone.

So further expanding the EITC could help low-income parents without dramatically worsening America’s child care affordability problem.

It’s also possible that moderates like Sen. Joe Machin (D-WV) will force the Democrats to trim the spending bill further. If that happens, the child care program should be one of the first on the chopping block. It’s poorly designed and is likely only to be adopted in the most left-leaning states. With limited spending capacity, it would be better to focus on unambiguous wins and return to the child care issue in a future session of Congress.

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