Today, Donald Trump laid out a series of economic proposals. Included, naturally, were a series of tax proposals, which I assume we’ll address on this blog as time goes on. For now, I want to focus on just one of his proposals: easing the cost of child care.
While the cost of child care varies, it has risen dramatically, nearly doubling over the last 25 years. And although the cost of child care varies from state to state—and even from city to city—the numbers can be eye-opening. In Illinois, the average annual cost of child care for an infant and a 4-year-old is more than $22,000. At the same time, the median income for a single parent is about $24,000, and the median household income for married parents is about $88,000.[fn1] That means that the cost of child care for two children represents 25 percent of the median Illinois married couple’s household income, and fully 94 percent of the median income of a single parent.
Clearly, using averages and medians doesn’t paint an accurate picture of any given family’s situation. But in no state would child care costs make up less than 30 percent of a minimum wage-earner’s income. That’s a pretty dire picture. Dire enough, in fact, that the cost of child care is keeping women out of the workforce. (And note that it’s not just women who can afford to stay out of the workforce because of a spouse’s or partner’s income: 34 percent of stay-at-home mothers live in poverty, as opposed to 12 percent of mothers in the workforce.)
Current tax law provides a child care credit parents can use to partially offset these costs. Initially, the law provides that parents get a refundable credit for 35 percent of qualifying child care costs. For our median Illinois family, that means a credit of $7,700, which would reduce the family’s after-tax cost of child care to $14,300. That’s still a lot, but it’s much better.
There’s a problem, though: the credit is capped at $3,000 for a single child or $6,000 for two or more children. Our Illinois couple’s credit, then, will be $6,000, and their after-tax cost $16,000.
One more thing, though: the credit begins to phase out as income exceeds $15,000. So our median single parent would only get a credit of 31 percent (though that’s still above $6,000, so she still gets a $6,000 credit). Our median married couple’s credit is limited to 20 percent, so their credit becomes $4,400, and their after-tax cost of child care is $17,600, or 20 percent of their income.
To deal with this, Mr. Trump has proposed allowing families to fully deduct the cost of child care. He has promised more details in the coming weeks, but he has at least recognized that the issue of child care cost is a real problem, and needs to be dealt with.
The problem is, while his proposal may be good for middle- and high-income parents, for most poor parents, it will be worse than current law. Largely, it’s because of the regressive nature of deductions, but partly it’s because I don’t think he or his advisers ran the numbers.
Let’s look first at our married couple: in 2016, a married couple with $88,000 of income is in the 25-percent tax bracket. A full deduction for $22,000 of child care expenses would reduce their taxes by $5,500. Which is more than the $4,400 current law provides.
But for our single parent—the person for whom child care may be an impassible barrier to entering the workforce—Mr. Trump’s proposal is significantly worse than current law. With income of $24,000, she’s in the 15-percent tax bracket. A full deduction will only reduce her taxes by $3,300. Full deductibility means she’s paying $2,700 more in taxes than she did with the current credit.
I hope that Mr. Trump and his advisers decide to run the numbers, and realize that their proposal hurts the people that it was meant to help.
(I should note that Hillary Clinton raised the issue of child care costs back in May, proposing that no family be required to pay more than 10 percent of their income in child care costs. Like Mr. Trump, Mrs. Clinton was light on details, saying only that she would achieve the 10-percent cap through a combination of direct spending and tax breaks for the middle class.)
[fn1] P. 27 of the PDF.