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High-quality child care is fundamental to the economic security of women and families, but for too many families, it is out of reach. President Trump’s child care tax proposal would do little to help families meet the costs of child care, and would give the most financial support to higher-earning families who need the least help paying for child care.
Both Trump’s proposed child care expense tax deduction and dependent care savings accounts, by definition, are worth more to higher-income families. The policies that Trump proposes to help low-income families, the child care rebate and the savings match, would provide very little support to very few. Overall, Trump’s child care plan gives the most help to those who need it the least.
The proposal has three main components.
1. Tax Deduction: Under Trump’s proposal, married couples filing jointly with incomes of $500,000 or less, and single taxpayers with incomes of $250,000 or less, would be able to deduct child care expenses for up to four children under the age of 13. The expenses would be capped at the average cost of child care in their state. Families with “stay-at-home parents” or with grandparents who provide child care at no cost would be able to claim the full amount of the tax deduction.
2. Dependent Care Savings Accounts (DCSA): Families could open tax-favored Dependent Care Savings Accounts to pay for care expenses for specific individuals. Immediate family members and employers of the account holder could contribute a total of up to $2,000 per year per account into these accounts. Those contributions would be tax- deductible, appreciation in the account balance would not be taxed, and the funds could accumulate until the child reaches 18 years old. For some “lower-income” families, the government would provide a match of up to 50 percent for up to $1,000 in contributions.
3. Child Care Tax Rebate: Under Trump’s proposal, some families — married couples filing jointly with incomes of $62,400 or less and single taxpayers with incomes of $31,200 or less — with no tax liability could receive “a child care spending rebate” through the Earned Income Tax Credit (EITC) for eligible child care expenses that were not applied to reduce tax liability. The rebate would be worth 7.65 percent of eligible child care expenses, and would be capped at the value of half the payroll taxes paid by the tax filer (based on the lower-earning parent in a two-earner household), for a maximum value of about $1,200.
Trump’s proposal gives tax breaks to high-income families, offers little help to low- and middle-income families, and doesn’t foster better child care options for families.
As a first step towards ensuring that all families — regardless of their incomes, where they live, or what their work schedules are — have access to the child care they need, and that the early educators who care for and teach their children are well-qualified and well-compensated, policymakers should significantly increase child care funding and improve child care policies to: