Increase child care tax credit
Jordan Ryan | Thursday, October 26, 2017
A primary concern of new parents is saving for their child’s college education. Our own college funds were likely started before we could even say the word “school.” The education of their children is often the most important investment parents think about. What is also incredibly important, and, unfortunately, often overlooked, is child care during our early years. For families who do not have a parent or caregiver to stay at home, child care can be an even greater burden.
Child care is likely much more expensive than we might assume. A Care.com study found that nationally, the average cost of care for one child for one week at a child care center is $196. Other forms of daycare, like babysitters or nannies, can cost families on average anywhere from $214 to $556 a week. The study also found that these rates are steadily rising. The study also found that 40 percent of parents reported that their child care costs have increased by $1,000 or more per year and 15 percent reported such costs increased by $5,000 or more per year.
According to the Economic Policy Institute, the average yearly cost of child care is more expensive than the annual cost of in-state tuition in 33 states. A fifth of American households spent 25 percent of their income on daycare. This burden is often too heavy to bear for families of lower incomes, creating a deficit early on in the education levels of children from those families as compared to children from wealthier homes.
Currently, our tax code does have a mechanism to partially address this burden. The child care tax credit (CTC), which all families can apply for, enables parents to reduce their annual federal income tax burden by up to $1000 per child depending on their financial condition. If parents pay less in taxes than the amount of their credit, the remainder of the credit can be refunded to the taxpayer. However, this tax credit does not go nearly far enough in minimizing the opportunity gap, especially for Pre-Kindergarten children.
An increase in this important tax credit is arguably long overdue. Americans who rely upon this credit have not seen an increase since 2001, when the credit was raised from $500 to its current level of $1,000 per year. Presidential advisor Ivanka Trump, along with notable lawmakers, including Senator Marco Rubio, have expressed the need to increase the child care tax credit to at least $2,000 annually, largely to accommodate these rising costs. This is a great step in the right direction.
This tax credit truly does have a material effect on families of lower income. Current statistical methods used in calculating the number of Americans who live below the poverty line do not include the positive effects of the child care tax credit. According to the Tax Policy Center, “If the CTC (including the refundable portion) were counted in the official estimate of poverty, 2.8 million fewer people would fall below the poverty threshold in 2015, including about 1.6 million children.”
This change may be hard to sell to many fiscally conservative members of Congress. The New York Times reports that a tax credit increase such as that being contemplated would accrete the federal deficit by $1.4 trillion over the next ten years, raising concerns for many lawmakers who remain focused on a balanced budget.
Though likely to increase the deficit, pursuing tax relief which will be most beneficial to the children in the underserved portions of our communities should be prioritized over other tax reductions. Children should be afforded every educational and developmental opportunity irrespective of the economic conditions of their families. The child care tax credit will help to promote such opportunities.
Though short of other pro-family initiatives that many on both sides of the aisle support, such as incentivizing paid family leave, an increase in the child tax credit is a clear step in the right direction.
The views expressed in this column are those of the author and not necessarily those of The Observer.