Opinion: How to help American families afford child care? Give parents money directly

If many mothers value being at home more than a paycheck, then we should reconsider the benefits of pushing them into the workforce with bigger child-care subsidies.

Last September, COVID-era federal subsidies to child-care providers ended. Despite apocalyptic warnings that 70,000 daycare centers would shutter, compelling at least one parent, usually mothers, to stay-at-home, American families have so far muddled through. The female labor force participation rate, which has recovered to pre-pandemic levels, did not collapse.  

Importantly, the U.S. government has not backed off from assisting families. The Child and Dependent Care Tax Credit offers up to $3,000 per child and the Child Tax Credit offers up to $2,000 per dependent, subject to rather generous income caps.

Congress has increased funding for the Child Care and Development Block Grant Program by 30% — about $8 billion per year.

Child care is expensive, but costs are being exaggerated. Child Care Aware of America put the annual cost of center-based care at $11,000 per child  in 2022. With the rapid inflation in that sector, it’s likely now around $12,000.

Getting a handle on costs is tough, because parents find the resources in many different ways. According to Care., the national average weekly cost of nanny care is $736 but for daycare centers it’s $284 per week. The latter varies greatly among well-established brands like KinderCare, locally based centers and people who take a few children into their homes. State regulations and quality of care varies substantially and are a major source of anxiety for parents.

What is clear is that the financial burden for American families is too heavy.

Of the families Care. surveyed, 67% are spending 20% of their household income on child care. The Department of Health and Human Services considers child care affordable when a family spends no more than 7%.

The Biden administration’s Build Back Better program would have dramatically raised costs. Its proposals would have sent money to the states to establish pre-Kindergarten programs, elevated salaries to the levels of public pre-school teachers and provided vouchers to low- and middle-income families.

Except by increasing demand faster than supply, those proposals would have exacerbated shortages for middle- and upper-income families.

With the competing demands of industrial policies to aid the transition to a carbon-free economy, other entitlement programs and defense spending, the kind of massive effort envisioned in Build Back Better is not likely.

The U.S. spends a lot less than most other advanced industrialized countries on child care, and parental out-of-pocket costs are much lower in those places. But the kind of welfare state that Build Back America envisioned — through its large child tax-credit, family care, paid family leave, universal pre-K, and guaranteed assistance to working parents for child care — requires the typical European worker to fork over 50% more of their pay in income and payroll taxes than do Americans.

Such tax burdens would force into the workforce many women who prefer to be at home with their children — the tax burdens on those families’ single income would be too great. In fact, the U.S. already may have more mothers working than would prefer otherwise.

The COVID shutdowns and hangover of work-from-home, which is likely to moderate as the U.S. labor market adjusts and cools, have scrambled preferences. Consequently, it will be hard to get an accurate read on what mothers prefer until the economy goes through the slowdown that may be coming.

Gallup poll just prior to the pandemic indicated that about half of mothers with children under 18 would prefer to stay at home. An American Compass survey in 2021 revealed a majority of working- and lower-class families, and a plurality of middle-class families, would prefer a one parent working and one parent at home model. Only upper-class professionals overwhelmingly prefer the child-care option.

Progressives like to argue that financing more women at work would add up to $1 trillion to U.S. GDP over 10 years. But that does not necessarily make Americans better off.

When parents care for children at home that creates value — what economists call household production — that is not captured when measuring GDP. If many mothers value being at home more than a paycheck, then we should reconsider the benefits of pushing them into the workforce with bigger child-care subsidies.

The best thing to do for families and the economy is to give parents money directly. Increase the child tax credit and let parents decide whether to care for their children at home or in a daycare setting. Currently, this is the focus of intense bipartisan negotiations in congress and should be supported.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

Also read: The rising cost of childcare is making life impossible for parents. Use our calculator to track the expense where you live.

More: ‘I hate the 9-to-5 grind’: I want more time with my newborn son, but my husband doesn’t work. Should I give up my job and dip into my six-figure trust fund?

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