Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007
Costs and Effects
As described earlier, the cost of expanding the Child and Dependent Care Tax Credit and making it refundable is in the range of $25 billion over five years. Overall, I estimate that annual new costs for the guarantee and the Early Care and Education Strategy Fund are in the range of $18 billion. However, costs of the guarantee are very sensitive to a number of key assumptions, including average costs of care, numbers of potentially eligible families, and take-up rates.
I assume in this article that assistance under the guarantee would cost an average of $5,000 per child before family copayments. The cost is averaged between younger and older children, across various types of care, and across states. In 2005, average payments to providers under CCDF were $4,236 per child, including CCDF payments and family copayments. Given the limited data and range of potential costs, further development of the proposal would benefit from exploration among states, researchers, and others of the likely unit costs of the proposal.
What would the guarantee cost? If it were extended to all working families with incomes below 200 percent of poverty and to welfare families engaged in work activities, subject to the proposed copayment structure, with an average cost of $5,000 per child and an estimated 50 percent take-up rate, and with a $2 billion Early Care and Education Strategy Fund, I estimate annual costs in current dollars of about $30 billion a year. This would mean net new costs of about $18 billion above current costs of about $12 billion a year. That expenditure would provide subsidy assistance to about 3 million low-income working families; it would also provide assistance to families in TANF work activities and maintain services to other groups eligible under current law, such as other families in education and training, protective services cases, and older children who were incapacitated or under court supervision. Under current law, the federal government pays an average of 57 percent of CCDF costs; if the federal share were to remain the same, new federal costs would be in the range of $11 billion a year.
Different assumptions or parameters lead to different cost estimates. For example, assuming an average cost of $7,000 per child would raise costs by about $10.6 billion. Imposing no copay against income below the poverty line would raise costs by about $1.4 billion. If the take-up rate were 5 percentage points higher or lower than the 50 percent estimate, costs could increase or decrease by nearly $2 billion.
Costs would also depend on whether the services and benefits available to families and children improve in other ways. Such improvements would present their own costs, but would likely reduce the costs of a child care guarantee and expansion of the CDCTC. For example, virtually every other developed nation provides paid parental leave for parents with very young children.43 A policy of paid parental leave in the United States would allow parents to stay home during the early months of a child’s life and take full advantage of their rights under the Family and Medical Leave Act; it would also reduce the “residual” costs of a child care guarantee and of the CDCTC. Similarly, recent research has found that children in the Early Head Start Program performed better on measures of cognition, language, and socialemotional functioning than their peers who did not participate in the program.44 Making Early Head Start available to more children would likely reduce child care costs. In recent years, states have expanded prekindergarten programs for three- and four-yearolds; expanding such programs, particularly if full day, would lower residual child care costs for affected children.45 Expanding afterschool programs such as those funded through the 21st Century Community Learning Centers framework would both increase family options and reduce the need for child care outside school hours.46
As noted, increasing access to child care and helping families afford higher-quality care would have a range of significant benefits for children. It would also raise employment and reduce poverty. Analysts at the Urban Institute have modeled the employment and poverty-reducing effects of a proposal similar to this one, in connection with estimating the effects of a set of recommendations by the Center for American Progress Task Force on Poverty.47 In doing so, they used a modified definition of poverty, drawn from the recommendations of the National Academy of Sciences, that subtracted child care expenses from income in measuring poverty. The Urban Institute, after reviewing the research on employment effects of child care subsidies, drew on that research to estimate that implementing the proposal would raise employment rates by 8 percentage points for unmarried parents and 3 percentage points for married parents with employed spouses, resulting in an additional 1.2 million married and 0.7 million unmarried workers. With those employment effects, the analysts estimated that implementing the proposal would reduce the number of people in poverty by 2.7 million—about an 8 percent decline. The number of children in poverty would fall by 1.5 million—about a 14.5 percent decline. The poverty gap—that is, the total dollar amount by which those in poverty fall below the poverty line—would fall by $6.5 billion (in 2003 dollars) at a net cost to government of about $17.1 billion (in 2003 dollars). Thus, in addition to reducing poverty, the proposal would provide substantial benefits to other low-income families with incomes above the poverty line.