Child Care as an Intergenerational Solution to Poverty

Blog Post
June 24, 2014

In the United States, approximately 30 million adults and 16 million children live in poverty—numbers that I think most Americans would agree are unacceptable. But while poverty impacts people at all stages of life, at what point are interventions most effective? Last week I had the opportunity to attend a policy summit hosted by the Brookings Institution’s ‘The Hamilton Project,’ Addressing America’s Poverty Crisis. The fourteen anti-poverty proposals unveiled at the forum target people of all ages—ranging from parenting interventions that can improve outcomes of infants and toddlers, to vocational programs that increase adults’ earning potential.

One appealing proposal was James Ziliak’s Supporting Low-Income Workers through Refundable Child-Care Credits, which aims to make high-quality child care more accessible for low-income working parents. Increased access to child care is an especially promising anti-poverty policy because it is intergenerational: it gives parents the time to work, and kids the educational opportunities they need to succeed. Among the summit’s many proposals to break the cycle of poverty, this was the only one that simultaneously and deliberately addressed the needs of both parents and their children.

Policymakers view work as a fundamental gateway out of poverty, and they should acknowledge that limited access to child care is a significant barrier to labor force participation. Parents of young children need access to child care if they are going to work outside of the home. Furthermore, working parents have higher household incomes, which are associated with better educational outcomes and reduced stress of poverty for their children. As Ziliak discusses in his paper, employment rates of less skilled, low-income mothers with dependent children “have been on a steady decline over the past decade, leaving many families unable to make ends meet.”

Child care subsidies are a promising anti-poverty policy because they not only help parents enter the workforce and provide for their families, but also improve children’s well-being. As I discussed in a previous post, low-income parents are less likely than their higher-income counterparts to place their children in center-based care, which tends to be higher quality than in informal, home-based options. This is at least in part because center-based care is more expensive, with the difference in costs reaching thousands of dollars per child in some states.

Ziliak’s proposal attempts to address these problems by restructuring the little-discussed Child and Dependent Care Credit (CDCC) to better “incentivize work and improve the financial and child well-being for low-income families.” The CDCC is one of a handful of federal child care policies, but as is often a problem with tax credits, it disproportionately benefits higher-income families. Ziliak suggests targeting the credit toward low- and middle-income families by changing it from a nonrefundable credit to a refundable one. This would expand eligibility to the lowest-income families; refundable credits allow families to receive a refund if their benefit outweighs the taxes they owe.

Under the current law, individuals of all income levels are eligible to benefit from the CDCC, and as depicted in the chart below, most tax expenditures are spent on those families with annual incomes over $100,000. Many parents who can arguably afford quality child care without any assistance are benefitting from the policy, while some high-need families remain ineligible.

Addressing Poverty Blog Graph

Ziliak suggests capping eligibility at $70,000 and making the credit progressive, so needy families receive more generous credits. He also proposes that parents of younger children receive larger credits since infant and toddler care is more expensive than care for school-aged children (the credit currently applies to care for any child up to the age of 13, as well as some disabled dependents). He addresses the issue of quality—a topic largely overlooked under the current law—by incenting parents to enroll their children in licensed, center-based programs. Low-income families who did so would receive double the credit rate, making high-quality care more accessible for low-income families. So for instance, a parent whose annual income amounts to less than $25,000 would receive $4,000 to send their toddler to a licensed care facility or $2,000 for an unlicensed facility.

Although Ziliak’s paper addresses numerous problems with the existing system, the roundtable participants pointed out some basic flaws with his proposal.  First and foremost, the plan is complex. The target audience for the plan—low-income families—are often those with the least time or ability to access tax benefits because of the complexities of filing, meaning it would be difficult for those families to comprehend, and difficult (if not impossible) to effectively administer. Yet no one at the event last week offered a more achievable suggestion. Although a comprehensive direct spending program, like an expansion of the Child Care and Development Fund subsidies in place now, could be more efficient, tax expenditures tend to have more widespread political popularity.

Unfortunately, no single policy will effectively address the nation’s poverty crisis on its own. Still, policymakers should not let such obstacles stand in the way of reform. Taken together, the types of proposals presented at last week’s summit have the power to make a substantial impact. And intergenerational strategies are particularly effective because of their potential to help the entire family overcome poverty. The benefits of child care policies likely outweigh the costs since they encourage parents to work and help reduce the achievement gap. For parents to take advantage of other anti-poverty programs, like apprenticeship schools and vocational programs, and eventually lift themselves out of poverty by participating in the labor market, they first need access to child care.  With over 15 percent of the nation living in poverty, the sooner (and earlier) we start providing families with the resources they need, the better.