Last week, Senator Elizabeth Warren (D., Mass.) unveiled her plan for universal child care. Families with income below 200 percent of the federal poverty line would pay nothing, while no family would spend more than 7 percent of its income on care. Her plan gives states flexibility to operate networks of center-based and home-based care, while imposing federal regulations to ensure quality.
Like most working parents, we recognize the importance of having affordable and high-quality child care, both for the economic health of our families and for the development of our children. Unfortunately, Senator Warren’s recent proposal is likely to fall short of achieving these goals.
There is no denying that child-care costs are a growing problem for families. Even conservative estimates suggest a 14 percent increase for the typical family since 1990, and many believe that American families need relief. Unaffordable child care can be a barrier to employment for parents who want to work, which harms their financial health and the growth and dynamism of the broader American economy.
But universal child care is the wrong approach.
First, just because something is expensive does not mean the government should subsidize it for everyone. Support should be targeted to families for whom the cost prohibits working or directly results in compromised quality of care. The more income-targeted the approach, the fewer unintended consequences that result and the less support to families that can pay for child care on their own.
Second, and ironically, government efforts to address affordability would likely increase the costs of child care even further. As the economist Jeffrey Dorfman writes, “when government provides payments for anything, the cost of that good or service always rises.” This is because costs become distorted when providers have no incentive to increase productivity and compete for business. And increased costs do not always mean higher-quality care. Parents are less likely to hold providers accountable for quality when they pay little for it.
Third, it is important to remember that we are not starting from scratch when it comes to helping families with child-care expenses. The proposal layers on top of the existing system of tax credits and block grants to states. In the existing system, families with children can potentially receive support for childcare from the earned-income tax credit (EITC), the child tax credit (CTC), and the child-and-dependent-care tax credit. Of these, the EITC is the best targeted at the lowest-income households, while the CTC is only partly refundable (meaning it goes to people without federal income-tax liability) and the dependent-care credit is not refundable at all, making both less accessible for those most in need. In addition, states can help eligible children with child-care subsidies through the Child Care Development Block Grant (CCDBG). However, only about 12 to 15 percent of federally eligible children are in fact served. Rather than a universal child-care program, a useful starting point could be expansion of this existing system.
Fourth, the proposal does not sufficiently address child-care quality. No evidence suggests that the government can sufficiently ensure quality child care under a universal system. A similar Canadian experiment showed that universal child care in Quebec resulted in children being “worse off in a variety of behavioral and health dimensions, ranging from aggression to motor-social skills to illness” than children without access to universal care.
Heavily regulating child care likely results in some high-quality providers, but it risks driving other providers out of the market because the added costs make the business unprofitable. States have already learned this lesson through declines in home-based providers as part of the CCDBG subsidy program (increased requirements were added to the program in 2014).
And finally, this carries a $700 billion price tag over ten years, on top of numerous other Democratic priorities including free college, guaranteed jobs, and the Green New Deal. One is left wondering where the prioritization of spending will end up.
We believe that there’s no shortage of ways to target child-care assistance to those who need it most without the unintended consequences of a universal system. Reasonable investments could make the dependent-care and child tax credits fully refundable for low- and middle-income families. The dependent-care credit could be indexed to inflation in child-care costs, and it could be provided monthly or quarterly to allow working parents the ability to secure child care. The EITC could be expanded to help families better meet child-care costs as well.
One benefit of refundable tax credits for low-income families is that they remain market-based. Parents would be able to choose which providers or centers they would like to put their kids in, increasing the demand for high-quality care, while at the same time giving families a stake in the costs. An added advantage could be reduced need for government subsidies through the CCDBG, if families were helped directly through tax credits.
We welcome a conversation on this important issue. But a universal program is likely to create more problems than it solves. A system that better targets the most vulnerable, reforms existing programs, and addresses the quality of care, at a reasonable cost, is more likely to benefit American parents and children.
Aparna Mathur is a resident scholar at the American Enterprise Institute and the co-director of the AEI-Brookings Paid Leave Workgroup. Abby McCloskey is the founder of McCloskey Policy LLC, a research and consulting firm.