Three Problems With President Biden's Child Care Rescue Plan

Editor's Note: This week and early next, IFS is hosting a symposium spotlighting a few of the policy proposals being considered on Capitol Hill. So far this week, we've heard from Patrick Brown, Samuel Hammond, and Angela Rachidi. Next up, in the first of a two-part series on universal child care, AEI's Katharine B. Stevens explains her concerns about the Biden Administration's plans to expand government-subsidized child care.

President Biden announced his $1.9 trillion “American Rescue Plan” last week, the first of two major spending initiatives he plans to seek in the initial months of his presidency. Consistent with his campaign’s strong emphasis on child care, the enormous spending package includes over $40 billion to address “an acute, immediate child care crisis in America.” It’s urgently needed, Biden explained, to save struggling child care businesses and enable women—forced to remain home to care for their children during the pandemic—to return to work.

As COVID drags on, it’s clear that millions of families with young children and child care providers are truly struggling; indeed, many needed help before the pandemic hit. But the plan the Biden administration has laid out is not adequately targeted to those who need help the most. And while framed as a technical response to fallout from the pandemic, the American Rescue Plan’s most important function may in fact be to lay groundwork for a permanent expansion of government-funded nonparental care.

The proposed plan includes three components:

• $25 billion for an “emergency stabilization fund” to help still-open child care providers stay afloat, help closed providers reopen, and assist with increased operating costs associated with the pandemic.
• An extra $15 billion for the Child Care Development Block Grant fund—the federal program that subsidizes child care for low-income families—to be added to the “down payment” of $10 billion approved by Congress in December. 
• A major boost to the Child and Dependent Care Tax Credit (total cost not specified) to provide a tax credit for child care spending of up to $4,000 for one child and $8,000 for two or more children. The full credit would be refundable and available to families with annual incomes under $125,000; families with incomes between $125,000 and $400,000 would receive a partial credit. (The current credit ranges from $600 to $1,200 for one child and $1,050 to $2,100 for two children, depending on income. It has no income limit and is not refundable.)

Some kind of emergency spending on child care may well make sense. But there are three problems with the approach Biden is proposing.

1. We know too little about the problem these funds are aimed to solve. 

The seriousness of a COVID-caused “child care crisis,” or to what extent it’s keeping women out of paid employment, remains unknown due to a lack of reliable data. For months, the media has been stressing the pandemic’s dire impact on the child care industry, with headlines like “Coronavirus Is Pushing the US Child Care Industry to the Brink of Collapse,” and “COVID-19 Has Nearly Destroyed the Childcare Industry—and It Might Be Too Late to Save It.” “Leaders in the childcare industry are calling for $50 billion in support to prevent what they say could be mass closures,” Business Insider wrote at the end of July.  

The pandemic has been tough on child care providers, as it has on many small businesses. The stream of alarming news stories, though, has been based entirely on anecdotal data: collected by advocacy groups, published as research reports, and widely promoted by a well-coordinated advocacy campaign launched last spring to push for huge boosts in federal spending on nonparental care. To address the effects of the pandemic on the child care industry, we need better information about what those effects actually are.

Further, as I’ve written previously, the best evidence we have suggests that school closures—not a shortage of child care for young children—are the primary obstacle to women returning to work. The $130 billion to reopen schools that Biden’s American Rescue Plan also calls for should therefore solve much of the current problem.

2. Funds are insufficiently targeted.

The funds Biden is calling for are not well targeted to either the providers or the families who need help the most. Assistance to providers should prioritize shoring up home-based, “family child care” providers—those who care for children in their own home, rather than at a child care center. Many families prefer a local home, rather than institutional, setting for their young children. That’s been particularly true in the context of the pandemic, because home-based providers care for much smaller groups of children, meaning less scope for disease transmission and more manageable logistics for maintaining a safe, clean environment.

Yet while home-based care plays an especially important role for both families and communities—along with a valuable opportunity for small-business ownership— home-based providers were the most fragile part of the child care sector, even before the pandemic. The average annual income for a licensed home-based provider is $29,377 for a work week of 56.5 hours. Since 2005, the number of licensed, home-based child care businesses has declined by almost 50%, even as the capacity of child care centers has increased, now constituting just around 10% of the licensed child care market.  

Aid to families should focus on those who really need help. While Biden’s plan describes funds as aimed to assist low- and moderate-income households, it in fact directs a lot of money to much wealthier people by making the full child care tax credit available to all families with annual incomes under $125,000. That group encompasses roughly three-quarters of American children under age five, many living in families with income considerably above their state’s median: $125,000 is at least 150% of median income in 43 states and at least double the median in 15. 

Low-income working families have long struggled with inadequate access to high quality care for their children and, as I’ve emphasized, truly need assistance. But there’s no good reason to provide billions in aid to people who can manage without it. Why not target children who live in households earning under $75,000, which includes roughly half of all American children under age five? Why should the top income quartile of families with young children be receiving any assistance at all?

3. The plan is a stake in the ground for a major expansion of nonparental care. 

Perhaps most important, Biden’s American Rescue Plan constitutes a substantial scale-up of government spending on nonparental, out-of-home care for young children, which, as Jenet Erickson and I will discuss in an in-depth essay next week, poses an underrecognized risk to the well-being of children and families. Together with the $10 billion already approved by Congress, the funds he’s proposing add up to more than twice total current federal spending on care and education programs for young children. 

The Biden campaign featured an unprecedented focus on the role of paid professionals—rather than parents—in caring for young children. We can expect much more along these lines to come soon. The president’s proposal is described as an “emergency” plan, but it looks more like a big first step towards institutionalizing the idea that people do not normally care for their own young children.

Katharine B. Stevens is a scholar at the American Enterprise Institute, focusing on early childhood development and learning.