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Why the child tax credit is not enough to help working families

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Rachidi, Angela
Publication Date: 
28 Jun 2017



Since taking office, President Trump has signaled a willingness to follow through on his campaign promises about family policy. At his daughter’s urging, he included paid parental leave in his budget and child care assistance in his tax plan: two domestic areas where the White House is calling for spending rather than cuts. But will other Republicans support the president?

Early indications suggest both policies remain a tough sell to GOP members. In meetings last week, some Republican lawmakers expressed a preference for an expanded Child Tax Credit in lieu of paid parental leave and more child care assistance. But however well intentioned, an expanded Child Tax Credit is not enough to help increase work among poor and low-income families. Given the problem of low labor force participation in the U.S., policies that increase work are badly needed.

Many Republican politicians have long been against paid parental leave and child care assistance. Beyond the usual arguments against any new government spending and employer mandates, federal paid leave has been described as hurting women, being too paternalistic, and leading to “lower pay, stingier promotions, and employer favoritism toward the childless.” When it comes to child care assistance, some believe it penalizes stay at home parents and can be harmful to children. While the truth is more nuanced, it doesn’t change the fact that many on the right have a difficult time supporting either policy.

This attitude creates a problem for the GOP, the party of family values and work promotion. Poll after poll shows that the majority of Americans, including Republicans, support policies for working families that include child care and paid parental leave. No doubt this factors into the White House’s insistence on enacting them. But it has left Republicans in the House and Senate in search of alternatives to support.

Perhaps because of this, the expanded Child Tax Credit has become the go-to policy. Expanding the Child Tax Credit from $1,000 to $2,500 per child, as has been proposed, appeals to the Republicans who can’t quite support the president’s policies, but still want to do something for working families.

Few disagree that middle-income, working families in America need some relief. The median American household has less income today than in the late 1990s, and many in middle America feel left behind. A little bit of tax relief for families with children through an expanded Child Tax Credit would address some of their financial insecurities and help families with the rising costs of raising children.

Nonetheless, it would be a mistake to use an expanded Child Tax Credit as a substitute for additional child care assistance and paid parental leave, both of which are still important work supports for families with children.

When it comes to child care, the proposed Child Tax Credit expansion is too small to help nonworking parents who can’t afford child care at all. On average, full-time child care in this country costs from $5,000 to $15,000 per year depending on the state and age of child — much more than the proposed extra $1,500 per year.

In terms of substituting for paid parental leave, using an expanded Child Tax Credit is an even harder sell. An extra $1,500 a year would be much less effective than targeted paid leave in helping a new mother stay home to care for a new child. A low-income mother working full time for $10 an hour would need $2,100 to cover lost wages for taking six weeks of leave. Not counting the cost of child care after the paid leave is over.

A modest expansion of the Child Tax Credit would help working middle-income families in an important way. And it might help balance the benefits of tax reform which often benefits those with higher incomes. Though without the help of other work supports, it risks being just another new federal expenditure that fails to produce meaningful results.

A better approach is the one already proposed by the president and his daughter, in addition to an expanded Child Tax Credit. Empirical evidence shows that providing well-targeted assistance in the form of paid parental leave and tax credits for child care assistance would have real results, especially when it comes to labor force participation.

Some Republicans may not like every aspect of the White House’s proposals, but if supporting working families and achieving meaningful results are the goal, the president’s proposal must be part of a broader package of family policy reforms.

-reprinted from American Enterprise Institute 

Entered Date: 
5 Jul 2017
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