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Why the Federal Government Should Subsidise Childcare and How To Pay for It in the United States of America

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Most families need childcare. Childcare is expensive and licensed center-based care is unaffordable for families of poor to modest means. There is broad public support for more government spending on childcare as long as that spending does not result in another unfunded entitlement that worsens the deficit. Claims that more spending on childcare will pay back the taxpayer in the long run based on better child development or increased workplace productivity are shaky. Political appetite for more spending on childcare will be greater if a childcare subsidy can be paid for as we go with an offset elsewhere in the federal budget. The federal deduction for charitable contributions is a possible target for such an offset.

The plan for increased childhood subsidies outlined in this paper would cost $42 billion and would provide a substantial subsidy for every child from birth to fifth birthday in a family at or below 200 percent of the federal poverty level. This is nearly half the families in the U.S.

If current federal spending on childcare and early childhood programs, amounting to about $26 billion a year, were shifted to the new subsidy, $16 billion more would be required. The charitable deduction presently costs the U.S. Treasury $55 billion a year. A $16 billion offset for childcare would allow the proposed childcare subsidy to be budget neutral while leaving $39 billion on the table to continue the charitable deduction or to support various tax reform proposals that are in the works.

Most voters want government to spend more money of the care and education of young children, for the good of families and everything that flows from stable homes and supportive environments for children and adults.  The policy arguments on this topic have largely been sideshows about research on long term benefits for children; whether it is desirable for government to gain substantial control over the environments in which young children are reared; and roles of the federal vs. state government. The immediate issues are more direct. The evidence shows clearly that many families need childcare and that licensed center-based care is not affordable for them. How can the federal government pay for it, assure that parents remain in the driver’s seat, minimize unintended negative consequences (including overutilization), and achieve requisite political support?

The present paper provides one solution in the form of childcare and education savings accounts paid for with redirection of current federal spending on early education and care, and through an offset from the federal deduction for charitable contributions. There are other policy mechanisms that have overlapping goals, including a Trump plan involving tax credits. Now is the time and the opportunity for serious political consideration of new funding and delivery models for childcare.

Source: Grover J. (Russ) Whitehurst,  Evidence Speaks Reports, Vol 2, #11,  March 9, 2017,  Why the federal government should subsidize childcare and how to pay for it.
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