Let's start this out by giving Hillary Clinton some kudos: Her recent proposal to expand access to child care is not small ball.
It could add anywhere from $35 billion to $100 billion in annual spending to the federal budget. It would bulk up a home visit care program for at-risk children, and invest more in child care providers so their workers — often grossly underpaid — are better compensated. But the centerpiece of her proposal is a dramatic pledge to make sure no American family spends more than 10 percent of their budget on child care.
But here's the problem. It sounds like Clinton wants to hit that 10 percent threshold by providing Americans more money through a new set of tax credits. And if anything, the last two decades of policy have revealed the limitations of this strategy. Clinton can and should find a better tool for delivering the money.
Here's how tax credits work: Once you've calculated the final tax liability you owe the government in a given year, the credit takes a defined amount of money out of that liability. So if you owe $1,000, and you're eligible for a tax credit worth $500, you only pay $500 in tax. They're different from deductions, since deductions actually remove some of your income from being taxed before you calculate you liability.
Clinton hasn't released the details of her plan yet. But the most likely model is a proposal the Center for American Progress (CAP) released back in September. It would create a system of tax credits tied to family income: Households making under 133 percent of the federal poverty line would only have to contribute 2 percent of their own income to child care, and the credit would fund the rest. For families making between 250 and 400 percent of the poverty line, they'd have to contribute 12 percent.
That sounds appealing — especially compared to what we have now — but I have two concerns.
The first is that the tax credits are by definition delivered by the tax code. And the tax code is very complex to navigate — especially for working class and poorer Americans who don't have the time to sift through tax paperwork or the money to hire an accountant. That has consequences.
The Earned Income Tax Credit (EITC), for example, has done a lot of good boosting the pay for American families who don't make as much. But because you have to navigate the tax code to get it, about 20 percent of Americans who qualify for the EITC don't use it. On top of that, about 22 to 26 percent of EITC payments are likely improper. That isn't because of fraud. It's just because the system is too complicated.
The other problem is that, while the CAP tax credit is ostensibly sent to the family buying the child care, it's effectively being sent to the provider of the child care. In other words, if you want to get the tax credit, you have to want child care in the first place. The plan involves a certain failure of imagination that assumes all families want to have both spouses in the workforce. Certainly more and more American families feel pressured by a cutthroat economy to have both spouses in the workforce. But that's a different thing from what they'd do if they had their druthers.
ObamaCare has a similar issue. The subsidies people get to buy insurance on its exchanges also come in the form of tax credits. Again, this comes with the usual complexity problems. But ObamaCare's tax credits are also subtly designed to steer consumers in a particular direction: There's one set to reduce your premiums and another to reduce your cost-sharing expenses (deductibles and copays) — and, oh, you can only get that second set of subsidies if you sign up for a silver plan. There's a built in assumptions that the technocrats who designed the plan know what people should buy before they buy it. And even if it's unintentional, the plan Clinton seems to have in mind just assumes everybody should buy child care.
But some families may prefer, for whatever personal or cultural reasons, that dad or mom stay home with the kids. And the question of child care, like most things in life, involves trade-offs: There's some (contested) evidence it can do modest-but-noticeable long-term damage to children's emotional and behavioral well-being — even when the quality of the care was high and the families were otherwise well-off, happy and stable.
That's not a condemnation of child care. It's just something families have to weigh, and it's something they should have the freedom to weigh. And giving them that freedom is as simple as just giving them the money they need. Certainly, we should still invest in home visit care and better quality providers on their own terms. But since simple, straightforward money is universally adaptable to all options, just give families a cash benefit to spend as they see fit.
The easiest way to do that would be a universal child allowance. A monthly cash amount, given to every family for each child they have. No byzantine paperwork or bureaucracy to get through: You qualify for it simply because you have a child. It would give parents more breathing room to work at a job, or more breathing room from the necessity of having a job.
Clinton's shown real ambition with this proposal. There's no reason not take to take it one step further.