Last week was a big week for child care and early education. On Saturday, the White House announced a proposal for a fairer tax code that invests in middle-class families, including an expansion of the Child and Dependent Care Tax Credit (CDCTC). On Tuesday, President Obama emphasized the importance of child care during his State of the Union address, saying that it’s time we stop treating child care as a side issue, or as a women’s issue, and treat it like the national economic priority that it is for all of us. And on Thursday, the President announced a major new proposal to make high-quality child care available for all infants and toddlers in low- and moderate income families, and highlighted the proposal during a visit to a Head Start center and a speech in Lawrence, Kansas. The expanded child care tax credit and child care assistance proposals would be paid for by making very wealthy investors pay their fair share of taxes and fees on large financial institutions.

Specifically, the President proposes to provide an additional $80 billion over ten years for the Child Care and Development Block Grant (CCDBG). The funding would be used to make child care assistance available to all families with incomes up to 200 percent of poverty (about $40,000 a year for a family of three) and children under age four so parents could work or attend school or job training. This measure would expand access to high-quality child care to 1 million more children, for a total of 2.6 million children receiving child care assistance each month, by 2025. To receive the additional funding, states would be required to develop plans for building the supply of high-quality care for infants and toddlers and ensure that provider payment rates are sufficient to cover the cost of high-quality care and that parent copayments are reasonable.

The additional funding would also help enable states to meet the new requirements of the CCDBG reauthorization law that passed with strong bipartisan support last year. States will need new resources to achieve the important objectives of the reauthorization, including protecting children’s health and safety (through steps such as requirements for criminal background checks and regular inspections of child care programs), improving the quality of care (through strategies such as professional development opportunities for child care providers), and making the system more family-friendly (through changes such as allowing families to continue receiving for child care assistance for a full 12 months without having to recertify their eligibility).

The proposal would also make $100 million in competitive grants available to states, territories, tribes, and communities to support innovative strategies for addressing unmet child care needs. Funding would be awarded to grantees to develop, implement, and evaluate promising practices to help families with challenges finding high-quality child care, particularly families in rural communities, families who have children with disabilities, and parents who work non-traditional hours.

Improving the CDCTC is another important way to help working families afford the child care they need. Currently, families with children under age 13 (or dependents incapable of self-care) are eligible to claim a maximum credit of only $1,050 for one child (35 percent of up to $3,000 of child care expenses), or $2,100 for two or more children (35 percent of up to $6,000 in expenses for two or more children). These expense limits are low—and, under current law, the 35 percent rate starts phasing down for families with incomes over just $15,000. Families with incomes above $43,000 can claim only 20 percent of their expenses, for a maximum credit of $600 for one child, $1,200 for two or more children. And the current credit is not refundable, so low-income families with little or no federal income tax liability receive little or no benefit from the credit.

The President’s proposal to expand the CDCTC would significantly increase the credit for many middle-class families, especially those with children under age five. Under the President’s proposal, families with children under five could claim a maximum credit of $3,000 for one child (50 percent of up to $6,000 of child care expenses), or $6,000 for two or more children under age five. Families with incomes up to $120,000 would be eligible for the full credit. The 50 percent rate for families with young children would start phasing down after $120,000, reaching 20 percent for families with incomes above $178,000, for a maximum credit of $1,200 for one young child, $2,400 for two or more young children.

The President’s CDCTC proposal would also increase the credit for many families with children ages five through 12. It would not change the expense limits for older children, which would remain at $3,000 for one child, $6,000 for two or more children ages 5 through 12. However, families with incomes up to $120,000 could claim the full 35 percent of those expenses, for a maximum credit of $1,050 for one older child, $2,100 for two or more older children. The expanded tax credit would replace child care flexible spending accounts, which allows employees whose employers offer such plans to exclude up to $5,000 in child care expenses from their taxable income.

Unfortunately, under the President’s CDCTC proposal, the credit would remain non-refundable, which means that families with incomes too low to owe federal income taxes would not benefit, and many moderate-income families would receive only limited help. An expansion of the CDCTC that did not make it refundable would have to be paired with the type of significant new investment in CCDBG proposed by the President to reach the many low-income families who need help paying for child care.

As part of his plan for child care and early education, the President also reiterated his commitment to expanding access to preschool programs and proposed to expand other early care and education initiatives. The President continues to call for making preschool available to all four-year-olds in low- and moderate-income families through state-federal partnerships, at a cost of $75 billion over ten years paid for with a tobacco tax increase. In addition, he proposes to expand Early Head Start-Child Care Partnerships, which are designed to increase the availability of high-quality, full-day early care and education for infants and toddlers; provide funding to allow all Head Start programs to operate at least for a full school day (6 hours a day) and full school year (170 days a year); and continue and expand support for voluntary home visits by nurses and other professionals to vulnerable families with very young children.

The President’s budget, which will be released on February 2nd, will have more information about these proposals. NWLC will keep you posted on all the details of the proposals and on efforts to move the proposals forward.

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