(Updated: November 15)
On the campaign trail and in the White House, President Donald J. Trump has promised to provide “tax relief for families with child and dependent care expenses.” And his daughter, White House advisor Ivanka Trump, has emphasized that any tax reform plan would have to address child care and parental leave. Up until now, those plans have been vague.
On November 2, following months of negotiations, Republicans in the U.S. House of Representatives released details of a long-awaited, $1.5 trillion overhaul of the tax code—which, if passed, would be the biggest revision of the tax code since the Reagan administration. The plan, which includes sweeping changes on everything from mortgage deductions to corporate tax rates, still needs to make it through the House. Republicans in the Senate followed with a separate plan on November 9. (If both versions pass, the House and Senate will attempt to hammer out a compromise deal before the end of the year.) Congressional insiders have emphasized that the details could evolve drastically in the coming weeks—and they already have. But, for the first time, the GOP has described its vision for making child and family care more affordable.
The centerpiece of the House proposal—the “Tax Cuts and Jobs Act”—is an expansion of the child tax credit from $1,000 to $1,600 per year. Currently, the full amount of the child tax credit is available only to individuals who make $75,000 and under, or married couples who make up to $110,000. Under the House plan, the $1,600 credit would be available to individuals who make up to $115,000 and couples who make up to $230,000.
The House plan also introduces an additional tax credit. According to the Wall Street Journal, “The House bill also creates a new $300 credit for each person in a filer’s family who isn’t a child, including the primary taxpayer and non-child dependents such as college students.” The $300 credits, which could also be used towards senior care, are intended to expire in 2023. The Senate bill includes the same credit, but for $500 per person.
Still, the amount of the expansion is less than had been proposed by some Republicans. “House #TaxReform plan is only starting point,” Sen. Marco Rubio tweeted shortly after the plan’s rollout. “But $600 #ChildTaxCredit increase doesn’t achieve our & POTUS goal of helping working families.” In the past, Rubio has proposed expanding the child tax credit to as much as $2,000, or $2,500 per family. (California Democrat Linda Sanchez proposed a $3,600 credit that would have applied only to families with children younger than 6, but her amendment was defeated.) Then, on November 15, the Senate announced that it was adopting Rubio’s advice as part of its competing tax plan.
In the Senate’s plan, the child tax credit would jump to $2,000 per child. While the current credit is applicable to children as old as 16, the Senate would expand it to include 17-year-olds. By far the biggest difference in the Senate plan, however, is that it makes the child care credit available to families who make up to $1 million per year. (The House version caps it at families making $110,000.) If adopted, this would be a vast expansion of the credit that, opponents claim, would primarily benefit the rich. That’s because the child tax credit is only partially refundable, so low-income parents generally don’t qualify for the full break. The Baltimore Sun wrote that the revised Senate plan “increases the child tax credit slightly more than the original Senate bill, but the way the legislation is written excludes poor families from some of the benefit. It does, however, help out those who earn up to $1 million a year.”
What Is the GOP’s Plan for the Child Dependent Care Tax Credit?
Both the House and the Senate plans would retain the Child Dependent Care Tax Credit. But the House has its eyes set on eliminating dependent care flexible spending accounts, which allow families to use pre-tax money towards the cost of care. Initially, the Sacramento Bee reported that the flexible spending accounts were being eliminated in the House’s plan. In a later version of the bill, the House adjusted its plan so that the flex-spend accounts were restored—but only temporarily, for a period of five years, after which they’d be eliminated.
Currently, the child care dependent tax credit (CDCTC)—not to be confused with the child tax credit—allows families to deduct up to $2,100 from their tax bill to offset the cost of child care. To qualify for the CDCTC, the tax filer (or their spouse) must be employed, searching for work, or enrolled as a full-time student. If so, they can itemize their care-related expenses up to $3,000 for one dependent or $6,000 for two or more. Critics often point out that the CDCTC is non-refundable, which means that lower-income families paying little or no income tax receive limited benefit from it.
The dependent care flexible spending accounts, which would be eliminated after five years under the House plan, currently allow families to set aside up to $5,000 in pre-tax income to pay for child care expenses—whether that’s in-center care or nanny care, so long as you’re following the applicable tax laws.
The Senate plan retains both the child dependent tax credit and the flexible-spending accounts. It appears that the Senate plan, unlike the House plan, does not contain a five-year limit on the flexible spending accounts.
What Does the GOP Plan Mean for Families?
It’s still too soon to definitively state whether middle-class and working families will benefit from the full GOP tax reform plan—in part because the details are still in flux, and in part because the results depend on the gains and losses in the tax code due to changes in mortgage deductions, exemptions, tax brackets, and other major changes. However, House Republicans, including Speaker Paul Ryan and Ways and Means Chairman Kevin Brady, claim that the average American family—i.e., a family of four with an income of $59,000—would save $1,182 per year.
That’s backed up by an analysis conducted just after the release of the House plan by the Wall Street Journal:
“Under current law, in 2018, a married couple with two children making $60,000 would get a $13,000 standard deduction and four personal exemptions each worth $4,150. That means they would pay taxes on $30,400 of taxable income. Their base tax bill of $3,608 would be reduced by $2,000 in child tax credits for a total income tax of $1,608.
Under the House plan, the same married couple with two children would get $3,800 in tax credits, $3,200 for the two children and $600 for the two parents. The same family would get a $24,400 standard deduction but no exemptions, for $35,600 of taxable income. Their base tax bill of $4,272 would be reduced by the $3,800 in credits for a total income tax of $472.”
Just before the release of the House tax plan, the Center for American Progress, a progressive think tank, asserted that “even a significant increase to the [child tax credit] would not be enough to offset the significant losses many working families would experience under Trump’s overall tax plan. And it would be nowhere near what is needed for Trump to make good on another unfulfilled campaign promise—to make child care affordable for families.” The House bill, the Center claims, “also eliminates tax deductions for businesses that provide employer-sponsored child care.”
According to an analysis by the progressive Center on Budget and Policy Priorities, under the Senate’s proposed tax plan, a single mother with two children earning minimum wage would see an increase of just $75 from the new child-care credits, while a married couple with two children and earnings of $1 million would save over $3,000:
Is There a Democratic Plan for Affordable Child Care?
Under Congressional rules, Republicans may be able to pass their tax reform plan without Democratic votes. In September, Senate Democrats unveiled a competing plan, the Child Care for Working Families Act, which, in contrast to the Republicans’ emphasis on tax credits, proposes to expand federal funding of child care through the Child Care Development and Block Grant. That proposal centers on three key goals:
- Ensure no family earning 150 percent of state median income or lower would pay more than 7 percent of household income on child care.
- Support universal access to high-quality pre-school programs for all 3- and 4-year-olds, and increase funding for Head Start so all providers can offer full-day and full-year pre-K.
- Improve compensation and training for the child care workforce.
The Democratic plan joins an earlier bipartisan plan, released in July, 2017 by Kansas Republican Kevin Yoder and Florida Democrat Stephanie Murphy, called the Providing Affordable Child care for Everyone (PACE) Act. Like the new Republican plan, the PACE Act focuses on tax reform — but it takes a very different approach. PACE would make the Child and Dependent Care Tax Credit refundable — a term which means that it could result in a tax refund for lower-income families with low or no income tax liability. It would also expand the value of the CDCTC by raising the credit rate—families could deduct up to 50 percent of their child care expenses, as opposed to the current 35 percent. In addition, the PACE Act would expand the Dependent Care Flexible Spending Accounts program by raising the amount that families can put into the accounts from $5,000 to $7,500. Yoder claims this plan would do a better job of making child care more affordable for lower- and middle-income families. “Child care and nursery school costs have nearly tripled over the last 25 years,” he noted in a recent op-ed for The Hill, “yet the way the tax code treats those costs has remained the same.”
Research has repeatedly shown that it’s both smart and profitable to invest in improving access to quality, affordable care for young children. As Clair Cain Miller wrote earlier this year in the New York Times, the return on investment in smart child care policy can be measured in several ways: “Recent studies show that of any policy aimed to help struggling families, aid for high-quality care has the biggest economic payoff for parents and their children—even their grandchildren. It has the biggest positive effect on women’s employment and pay. It’s especially helpful for low-income families, because it can propel generations of children forward toward increased earnings, better jobs, improved health, more education and decreased criminal activity as adults.”
But child care continues to be a burdensome expense for American families. Our most recent Cost of Care survey, cited by Sen. Minority Leader Chuck Schumer, found nearly one-third of families (32 percent) spend 20 percent or more of their annual household income on child care. To put that in perspective: The child care dependent tax credit currently caps child care expenses at $6,000 per year. But Care.com’s data shows that the average cost of center-based day care is about $10,468 per year for infants and $9,733 for toddlers—with costs nearly double that in some big cities.
“Child care is a necessity, but it is so expensive that, just like college tuition, it has families up late at night worrying about how are we going to pay for this,” Schumer said, adding: “Families should not have to break the bank, sacrifice their careers or forfeit savings for the future so their kids have access to quality learning and care that will put them on the path to success.”
