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Harris’ child care plan is flawed
The trouble is the cap on costs at 7% of income — not the number but the method.
By Kathryn Anne Edwards
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“My plan is that no family, no working family, should pay more than 7% of their income in child care.” That’s what Vice President Kamala Harris said at a recent event in Philadelphia with the National Association of Black Journalists when asked about what she would do about the rising cost of child care. Compared with former President Donald Trump’s answer to a similar question a few weeks ago, in which he meandered from to tariffs to his daughter before declaring that “child care is child care,” it was at least a direct answer, if light on details.
Unfortunately, the one detail included in Harris’ response — the cap on costs at 7% of income — is problematic. It’s a worthy and necessary goal to have child care cost a smaller share of family income, but latching too tightly on to this number risks a Trojan horse of administrative burdens and implementation difficulties.
The idea of a 7% cap goes back to a Census Bureau report in 2013 that summarized child care arrangements in the U.S. Among its findings was that about 38% of children under the age of 5 had no regular child care arrangement, and 11% of children over 5 were often at home alone and unsupervised. Also, mothers with children under 15 who were employed but not self-employed (about 60% of mothers) who were also paying for some form of care (about 32% of those mothers) paid on average 8% of their monthly income for that care. That number had averaged 7% since 1997. Voila! The magic number was 7%!
A year after the census report, the Child Care and Development Block Grant (CCDBG) was reauthorized. Among its many purposes, CCDBG funds child care vouchers for very low-income families. The vouchers aren’t an entitlement, as many who qualify don’t receive them. States are also allowed to charge voucher users copayments. The 2014 CCDBG capped those copayments at 7% of monthly income, informed by the Census Bureau report. Since then, 7% of income has become the benchmark for child care affordability. It’s obviously aspirational. The 7% estimate described money spent on care of children up to age 15. Limited to spending for full-time care for children under 5 would be significantly higher; Care.com estimates it was around a quarter of income last year.
It’s not the percentage that’s problematic, but the idea of using a percentage of income. There are 18.5 million children under 5 in the U.S. Say the federal government decided tomorrow it would fund all child care less 7% of family income from each participant. How should families pay their 7%? One option would be to have the providers collect it. This is the worst path, as providers would now be in the business of tabulating and verifying income. And it would incentivize those providers to take on children from richer families, where the 7% is higher.
It would be much more efficient to eliminate that transaction entirely, with providers billing the state for care and the state collecting the 7% copayment on the backend. That’s got issues, too. Nine states don’t collect income taxes, and if reimbursement depended on state income, the care subsidization would grow as unequally as the states, where median income ranges from $52,000 in Mississippi to $96,000 in New Jersey. Best to eliminate that transaction as well. The state gets money based on the number of children, not their income, and the federal government collects the 7% copayment on the backend.
The natural choice would seem to be to fold it into the federal tax system, where income is already reported and payments made to the government. It wouldn’t be an actual tax since it’s technically a copayment, but it would function as one. Even that is deeply problematic. Keep in mind that in any given year some 40% of Americans have no tax liability, and for the bottom half of filers making below $47,000 a year, their average tax rate is 3.3%. Further, about 3% of children are raised solely by grandparents and about 10% live with a grandparent.
Adding 7% of income to the tax bill would be a shock that many families would have a difficult time saving for, especially if it triples their total tax liability. The Internal Revenue Service could update the withholding schedule, so that more is taken out of paychecks ahead of time, but there’s still the rather unpredictable dance of how much families would owe given the Child Tax Credit and Earned Income Tax Credit, which provide credits to high- and low-income families. Or for those children living with a Social Security recipient, if this makes their household incomes eligible for taxation.
Even if 7% of income works out to be lower than where market rates are now, it’s not free. Unless there were lower copayments for people with lower income, many of those families would likely opt out and keep children in unpaid family care. But at the high end, 7% of income starts to get steep. For the top 10% of filers who make more than $170,000, that’s almost $12,000, which is creeping up toward current market rates. Many wealthy families would likely opt out too. (And consider that if 7% of income is billed to the tax filer, it creates an incentive to not get married — and have 7% levied on two incomes rather than one — until after kids are out of day care.)
Losing the low- and high-income families would mean that the new child care copayment system would levy a relatively large tax on primarily working- and middle-class families who have children under 5. Tying copayments to income leads to administrative burden and incentives that become almost impossible to get right. So don’t do it. Make it instead a per capita user fee — a flat payment for each kid in care that is universal and predictable.
To Harris’ credit, this conversation is only possible because she’s trying to answer the question. She’s giving Americans something to consider and build off of when there’s no alternative. Families shouldn’t have to pay so much for child care, but we can come up with a better plan than a blanket 7% of income.
Kathryn Anne Edwards is a labor economist and independent policy consultant who writes for Bloomberg Opinion.
about the writer
Kathryn Anne Edwards
It’s that of incuriosity. It’s that of believing to know better than those who know through experience.