Harris’ child care plan is flawed

By Kathryn Anne Edwards

“My plan is that no family, no working family, should spend more than 7 percent of their income on child care,” Vice President Kamala Harris said at a recent National Association of Black Journalists event in Philadelphia when asked what what she would do about the rising costs of childcare.

Compared to former President Donald Trump’s response to a similar question a few weeks ago, in which he dithered about tariffs on his daughter before declaring, “Child care is child care,” it was at least a direct answer, albeit with few details . Unfortunately, the only detail in Harris’ answer – capping costs at 7 percent of income – is problematic.

Ensuring that child care costs become a smaller portion of family income is a desirable and necessary goal. However, clinging too closely to this number risks creating a Trojan horse of administrative burdens and implementation difficulties. The idea of ​​a 7 percent cap dates back to a 2013 Census Bureau report that summarized child care arrangements in the United States. The findings included that about 38 percent of children under the age of 5 did not have a regular child care arrangement and 11 percent of them did not have a regular child care arrangement. Children over 5 were often alone and unsupervised at home.

Mothers with children under 15 who were working but not self-employed (around 60 percent of mothers), who also paid for some form of care (around 32 percent of these mothers), also paid an average of 8 percent of their monthly income for care. This number has averaged 7 percent since 1997. Voila! The magic number was 7 percent!

A year after the census report, the Child Care and Development Block Grant (CCDBG) was reauthorized. CCDBG finances, among other things, childcare vouchers for families with very low incomes. The vouchers do not constitute an entitlement as many eligible people do not receive them. States may also charge voucher users for copayments. The 2014 CCDBG capped these co-payments at 7 percent of monthly income, according to the Census Bureau report. Since then, 7 percent of income has been used as the benchmark for childcare affordability.

It’s obviously ambitious. The 7 percent estimate described expenses for caring for children up to age 15. A restriction on spending on full-time care for children under 5 would be significantly higher; Care.com estimates it was about a quarter of its revenue last year. It’s not the percentage that’s problematic, it’s the idea of ​​using a percentage of income.

There are 18.5 million children under the age of 5 in the United States. Suppose the federal government decided tomorrow to fund all child care minus 7 percent of each participant’s family income. How should families pay their 7 percent? One possibility would be collection by the providers. This is the worst possible way as providers would now be dealing with tabulating and verifying income. And it would give these providers an incentive to take children from wealthier families, where the 7 percent rate is higher.

It would be much more efficient to eliminate this transaction entirely by having providers bill the state for the cost of care and the state collecting the 7 percent copay on the back end. This also brings problems. Nine states have no income taxes, and if reimbursement were based on state income, care subsidies would grow as unequally as in states where average incomes range from $52,000 in Mississippi to $96,000 in New Jersey.

It’s best to eliminate this transaction too. The state receives money based on the number of children, not their income, and the federal government collects the 7 percent co-payment on the back end. The natural choice seems to be to fold it into the federal tax system, where revenue is already reported and payments are made to the government. It wouldn’t be a real tax since it’s technically a co-payment, but it would function as such. Even that is deeply problematic.

Consider that in any given year, about 40 percent of Americans have no tax liability and that the bottom half of filers, those earning less than $47,000 per year, have an average tax rate of 3.3 percent. In addition, about 3 percent of children are raised exclusively by grandparents and about 10 percent live with a grandparent.

Including 7 percent of income in the tax bill would be a shock that many families would find difficult to save for, especially if it tripled their total tax bill. The Internal Revenue Service could update the withholding schedule so that more is taken out of paychecks early, but there still remains the fairly unpredictable trajectory of how much families would owe given the child tax credit and the earned income tax credit, which provide credits to families with high and low income. Or for children who live with a Social Security recipient if this makes their household income taxable.

Even if 7 percent of the income turns out to be below the current market rate, it is not free. If there were no lower co-payments for people with lower incomes, many of these families would probably forego them and leave their children in unpaid family care. But at the high end, 7 percent of income starts to get steep. For the top 10 percent of applicants earning more than $170,000, that’s nearly $12,000, which is in line with current market rates.

Many wealthy families would likely drop out as well. The loss of low- and high-income families would mean that the new child care co-payment system would impose a relatively high tax on primarily working- and middle-class families with children under five. Tying additional payments to income creates administrative burdens and incentives makes it almost impossible to do everything right. So don’t do it. Instead, make it a per capita user fee – a flat payment for each child in care that is universal and predictable.

To Harris’ credit, this conversation is only possible because she tries to answer the question. It gives Americans something to think about and build upon when there is no alternative. Families shouldn’t have to pay so much for child care, but we can find a better plan than a flat 7 percent of income.

Kathryn Anne Edwards is a labor economist and independent policy advisor. This article was published by Bloomberg and distributed by Tribune Content Agency.