Child Care Subsidies: Mostly for the Middle Class
An example of "trickle-down liberalism"?
By Douglas J. Besharov and Paul N. Tramontozzi
This article originally appeared in The Washington Post, May 2, 1988.
As Congress debates the various child care proposals before it,
the conventional wisdom is that federal support for child care hit a dead end
when President Nixon vetoed the Child Development Act of 1971. Writing in The
Post, here's how Ellen Goodman put it: "From then on . . . the government was
committed to neglect. Child care had all but disappeared from the federal
Not so. Over the past 15 years, federal child care assistance has
more than doubled. By our estimates, between 1972 and 1987, federal child care
expenditures rose from $ 1 billion to $ 6.2 billion -- an after-inflation
increase of 127 percent. By 1989, expenditures will approach $ 8 billion,
another 24 percent rise in just two years.
Poor and low-income families, however, have not been the main
beneficiaries of this increased federal spending. During this period, combined
spending on child care programs for the poor, such as Head Start, the Child Care
Food Program, Social Services Block Grants and child care associated with
welfare and job-training programs rose from about $ 800 million to about $ 2.7
billion, which is only a 27 percent increase after inflation.
The other $ 3.5 billion in federal child care costs is
attributable to the two income tax credits, the Child and Dependent Care Credit
and the Employer-Provided Child and Dependent Care Services Credit. The Child
Care Credit dates back to 1954, when it was a limited deduction. After
successive liberalizations of the deduction in the 1960s and early 1970s,
Congress made it a credit in 1976. But the real increases in its cost have come
only in the last 15 years: from $ 224 million to $ 3.5 billion, an
after-inflation jump of a whopping 479 percent. It is expected to rise another $
1.1 billion by 1989, a 31 percent increase in just two years.
The Employer-Provided Child Care Services Credit is lesser known.
Enacted in 1981, it creates a tax shelter for up to $ 5,000 in child care
expenses if the employer -- rather than the parent -- pays for the child care.
According to the Treasury, this credit is growing even faster -- from $ 30
million in 1987 to a projected $ 150 million in 1989, a fivefold increase in
only two years.
Perhaps the child care issue has been off the "federal agenda"
since 1972, but, behind the scenes, federal subsidies have more than doubled.
This increase, however, came almost entirely in the area of tax credits and has
largely benefited middle-class families -- not low-income ones. Tax credits do
not benefit poor or low-income families, who hardly pay taxes in the first
place. In 1983, less than 1 percent of tax-credit benefits went to families with
adjusted gross incomes below $ 10,000, and only 16 percent to families with
adjusted gross incomes below $ 15,000.
Thus, the last decade and a half has witnessed a shift in the
targeting of federal child care assistance. In 1972, nearly 80 percent of
federal expenditures benefited low-income families; now about half do. The major
child care bills before Congress -- Sen. Christopher Dodd's Act for Better Child
Care Services (ABC) and Sen. Orrin Hatch's Child Care Services Improvement Act
-- would go a long way to ratify this trend toward greater middle-class
The ABC bill, for example, would provide financial support to
families earning up to 115 percent of the median income. Nationally, that would
be about $ 34,000, but ABC sets eligibility by state median incomes, so that
many states would have considerably higher caps: $ 39,530 in Illinois, $ 39,920
in the District, $ 41,656 in California and $ 44,941 in Massachusetts, for
example. Moreover, the bill does not guarantee low-income families a minimum
percentage of appropriated funds; it merely requires that state plans "give
priority for services to children with the lowest family incomes." The Hatch
bill has no income cap.
Perhaps child care should be universal -- available to all
families, regardless of their income -- like public schools. But that is an
eventual question, as is the proper role of the federal government in
establishing such a system. For now, in this era of Gramm-Rudman-Hollings, when
programs for the disadvantaged are under the gun, it is simply wrong to funnel
scarce federal dollars -- in increasing amounts and proportions -- to
middle-class families. Priority should be given to families in greatest
What's going on? The pressure for a child care bill is coming from
a coalition of child care providers and associated professional groups, unions,
women's groups and various advocates for the poor and disadvantaged. It is easy
to see why the first of these groups wants the bill. It would expand programs
and jobs -- and, ultimately, raise salaries. Women's groups are seeking an
acknowledgment that women play an important role in the economy and that meeting
their child care costs should be a public responsibility.
But why should advocates for the poor help create a new
middle-class entitlement, instead of an expansion of Head Start and other child
care programs specifically targeted to low-income families? The theory seems to
be that, when you give the middle class a big enough government subsidy, voters
won't mind if a little bit ends up helping the poor. You might call this
Perhaps these advocates are right. Perhaps the only way to provide
help to the poor is to embed their aid in a middle-class entitlement.But that's
hardly an efficient approach to a serious and costly issue of public policy.
Douglas J. Besharov is a resident scholar at the American Enterprise
Institute, where Paul N. Tramontozzi is a research assistant.
(For a PDF version, please click here.)
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