Child Care Subsidies: Federal Grants and Tax Benefits for Working Families (CRS Report for Congress)
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| Release Date |
March 15, 1999 |
| Report Number |
RL30081 |
| Report Type |
Report |
| Authors |
Thomas Gabe, Bob Lyke, and Karen Spar, Domestic Social Policy Division |
| Source Agency |
Congressional Research Service |
Summary:
Most parents with minor children are employed, and for many child care is a significant but
necessary expenditure. For poor families it can consume one-sixth of their income, while for middle
income families it can sharply reduce the returns from working. Some parents do not use child care,
arranging work schedules around the school day or leaving children home alone, while others rely
on unpaid care by relatives. These arrangements sometimes reflect parental choice, but other times
they indicate that paid child care is not affordable.
Congress has authorized both federal grants and tax benefits to help working families with child
care expenses. However, these provisions were not explicitly designed to complement one another.
The principal grants are made to states from the Child Care and Development Fund
(CCDF) , a
program that helps provide child care assistance to welfare and low-income working families
through certificates (vouchers) or direct purchase. The principal tax benefit is the child and
dependent care tax credit (DCTC) , which allows working families to claim a federal
income tax
credit for child care expenses. In addition, for families with participating employers, the
dependent
care assistance program (DCAP) allows working families to exclude from their gross
income
employer assistance for child care. Together, these provisions represent a federal budget
commitment of more than $6 billion annually.
These child care subsidies are aimed at different populations, with the grant program primarily
intended for low-income families and the tax provisions primarily benefitting middle and higher
income families. There are gaps in coverage within states for lower middle income families, and
instances in which slight differences in income can result in large differences in benefits. Moreover,
because CCDF eligibility and cost-sharing rules vary from state to state, similar families may be
treated very differently in one state versus another.
These patterns may suggest that the federal government lacks a cohesive policy of child care
subsidies for working families. However, the CCDF and tax provisions were developed
independently of one another and have been justified on different grounds: the grant program
reflects public welfare arguments that welfare and low-income families need child care assistance
to enter the workforce and remain employed, while the tax provisions reflect traditional tax
principles regarding recognition of work-related expenses. Though an objective of the CCDF is to
make some form of care affordable to low-income families to enable them to work,
neither it nor the
tax provisions are intended to make child care affordable for all families.
Recently, the Administration and Members of Congress have proposed legislation to expand
both the CCDF and the DCTC. These proposals may offer an opportunity to consider the extent to
which the subsidy gaps and inconsistencies should be eliminated. Congress might also wish to
examine whether child care should be generally affordable and the relationship of subsidies to the
supply and type of child care that families can actually obtain.
