Improving the Child and Dependent Care Tax Credit: A Step in the Right Direction

Yesterday, the Trump administration announced broad principles for its tax plan, including enormous tax giveaways to high earners, dramatically lowered corporate tax rates – and some form of tax relief to help families with child and dependent care expenses. Media reports have suggested that the way the Administration would address this last point would be by improving the Child and Dependent Care Tax Credit — and, some press reports suggested the credit might be made refundable.
If so, it is a good thing that the Trump Administration is abandoning the disastrous child care tax proposal Trump released during the campaign, which primarily benefited higher-income families by virtue of offering a tax deduction and savings account rather than a credit. That proposal was estimated to give 70% of its benefits to families with over $100,000 in income – and families with incomes between $10,000 and $30,000 would only receive $10 in annual tax benefits, on average. In contrast, improving the Child and Dependent Care Tax Credit (CDCTC) by making it refundable, increasing the expense limits, and improving the percentage of expenses that families receive, would provide the most benefits to the lower- and middle-income families who most need help with the high cost of child care. If the credit were just made refundable, over a million additional families would receive tax assistance from the credit. It is unclear though how the Trump Administration proposes improving the CDCTC.
Moreover, there are other important components that must be part of any child care plan. Any child care plan must address the fact that families need help paying their child care bills every week, or every month, as they come due. It also needs to improve the quality of child care so children get a strong start, and raise the unacceptably low wages of child care providers. This means that, in addition to tax assistance through an improved tax credit, we need a significant increase in investments in direct child care assistance through the Child Care and Development Block Grant (CCDBG), the primary federal child care assistance program, which provides funding to states to help low- and moderate-income families afford child care. Despite the high demand, only one out of six children eligible for child care assistance under federal law receives it. In order to provide assistance to the families who need it, a serious investment in CCDBG is long overdue.
In light of what families really need to help with the high cost of child care, improving the Child and Dependent Care Tax Credit would be a start – although it certainly depends on what improvements end up being proposed. However, the improved credit would still be situated in a tax plan with enormous tax giveaways to corporations and the wealthy and arises in the context of a proposed budget that will decimate support for families. Both must be rejected for the future of the country and our children and families.