Millions of working families struggle with the high cost of child care, so it’s not surprising that child care has been a focus of the presidential campaigns. Yesterday, Republican Presidential nominee Donald Trump introduced a paid leave and child care proposal, during a speech in Pennsylvania. The child care proposal expanded upon statements made by the candidate in August, when he generally proposed that parents would be able to deduct the cost of child care from their taxes.
Yesterday, more specifics were provided about the proposal. It would:
- Allow parents with incomes below $250,000 ($500,000 for a married couple filing taxes jointly) to deduct child care expenses for up to four children, and elderly dependents. Child care expenses would be capped at the average cost of care in the state (care expenses for elderly dependents would be capped at $5,000). Stay-at-home parents would also be allowed to receive a tax deduction equal to the average cost of child care in the state of residence, under this proposal.
- Provide child care “rebates” under the Earned Income Tax Credit to low-income families who lack enough income tax liability to benefit from a deduction. The proposal asserts that these families could receive up to $1,200.
- Create new Dependent Care Savings Accounts (DCSAs) that could be used to pay for child care and elder care. These accounts would be not be restricted to families with particular incomes, and wouldn’t be offered by an employer. It would be necessary to open separate accounts for each child or dependent. Families could contribute up to $2,000 per year, pre-tax. Lower-income families would receive a government match for the first $1,000 deposited in such accounts, per year. The account funds could be used to pay child care expenses, the costs of “after school enrichment,” and tuition expenses for children; long-term or nursing home care for elder dependents. In addition, account funds could be used to pay higher education expenses once children have turned 18.
- Promote unspecified “new family-based and community-based solutions” through “regulatory reform,” and add incentives, presumably tax-based, for employers to provide child care at the workplace.
Any proposal structured around tax deductions in this way will overwhelmingly benefit higher-income families while doing little for lower-income families who need the most assistance.
As we’ve noted before, tax deductions for child care expenses do little to help lower-income families, Millions of families have incomes that are too low to have any federal tax liability at all, and thus would not benefit from a tax deduction. And while refundable tax credits can help families make ends meet, the proposal’s “child care rebate” of up to $1,200 through the EITC for families who lack tax liability, in addition to being very short on details, would do very little to help families meet the high costs of child care – which can range from $3,700 to over $17,000 per year for one child. In addition, it is unlikely that low- and moderate-income families would be able to take advantage of the proposed Dependent Care Savings Accounts. Families who are already struggling to make ends meet are not likely to be able to put thousands of dollars into savings accounts to pay for future child care expenses.
Instead, this proposal would give the most benefit to high-income families. In contrast, providing direct assistance through subsidies and making the federal Child and Dependent Care Tax Credit refundable would provide the most assistance to those families who most need help paying for child care.