Impact of Build Back Better for Child Care

The Build Back Better Bill, at its core, would devote a significant portion of federal funds to the child care sector. Specifically, this money would go towards helping families afford child care and also provide funds to the state to help expand the child care supply, improving the overall quality as well. From a family’s perspective, the goal is to cap child care expenses at a percentage of the individuals yearly annual income through subsidies. For some, this would come as a coupon or voucher families could get from the government and redeem at licensed child care providers. For others, families would go to the state government to request subsidized slots that are already reserved at specific licensed providers. The end result is the same: Subsidized families would only be responsible for paying a “copay,” not the full cost of care, if anything at all.

Subsidy Program in Practice: Example

The amount of the subsidy is calculated based on state median income levels by family size and are most accommodating for families with lower incomes, gradually getting less generous as incomes rise. In this example, we’ll use a state median income of $100,000 for a family of four (to keep the numbers clean).

In 2025, when the plan is scheduled to be fully phased in, this is how the subsidy would break-down for a family of four:

·         Families with yearly income below $75,000 (75 percent of the median) will pay nothing for child care — the government pays for it all.

·         Families making $100,000 (100% of the median) will have a copayment of about $2,000 per year (the government pays for any expenses above that).

·         Families making $150,000 (150% of the median) will have costs capped at about $10,500 (7 percent of their yearly income).

·         Families making $250,000 (250% of the median) will have their costs capped at about $17,500 (7 percent of their yearly income).

·         Families making more than $250,000 (above 250% of the median) will not be eligible for any subsidies. They’d have to pay the full cost of child care, as they do now. (This is what’s known as a benefit cliff, where a slight increase in income leads to the loss of potentially thousands of dollars in benefits.)

The first little hiccup with the plan, is the issue of who will be eligible for this subsidized help. Some families won’t qualify, since there’s an “activity test” that will likely exclude some of the very poor. Others will qualify eventually — but not right away because of the plan’s gradual rollout. Only families at or below the state median income will be guaranteed subsidies right away; those with higher incomes will have to wait one to three years. Second, a great deal of discretion is left to state governments, including whether they’ll participate in the plan at all. In practice, red states could opt out, especially because states would be expected to pick up a proportion of the costs starting in 2025.

The Build Back Better is among the most ambitious proposals in the bill. It could be very challenging to implement. The bill would provide government funding for child care for families with children under the age of six. The Plan also provides funds to encourage the expansion of child care facilities and boost wages for child care workers currently in operations. “This is game changing, and it’s gotten lost in the shuffle at times,” says Julie Kashen, director for women’s economic justice at the Century Foundation. “It guarantees families access to affordable child care, something that does not currently exist.”

All parties seem to agree and say the plan could raise prices for many parents and create a shortage of child care options in an already crowded market. According to the plan, families with low and middle-class incomes would receive generous federal subsidies to offset the cost of child care at licensed facilities. Many families that would qualify for this plan do not currently use licensed facilities, leading to a dramatic surge in demand for licensed child care services. Another problem here is the limited supply, even today, options are expensive and difficult to come by in many parts of the country. If the supply of child care centers can’t keep up with the demand, prices are bound to increase and shortages would almost be a guarantee. But these rate highs would most effect the middle- and upper-class families who would have to pay more, since many families won’t be eligible for subsidies until 2025. They would be forced to pay any rate hikes to their current arrangement with no government assistance.

“The status quo of rising child care costs and waiting lists is not working for parents, and to fix it you do have to tackle the problems of cost and supply at once,” an aide for Sen. Patty Murray (D-WA), one of the architects of the plan, said. “That’s why this bill lowers more and more families’ child care costs over the first three years, while prioritizing helping states invest in opening new providers, increasing wages for the early childhood workforce, and adding slots.” The White House did not respond to a request for comment.

Reformers look at that industry and see numerous problems. A big one is that child care is very expensive. This impacts low-income people hardest but also burdens middle- and upper-middle-income people as well: The Center for American Progress estimated that the average yearly cost for center-based infant care (a particularly expensive type of care) is nearly $16,000; in some cities, the average cost can be as high as $24,000. This puts such care out of the price range of many families and drives women especially out of the workforce. Another factor driving prices up is the shortage of licensed facilities in many areas.

“Today, parents and providers are essentially pitted against each other,” says Kashen. “Either providers are raising wages and parents can’t afford it, or parents can afford it and providers are paying poverty-level wages.” In theory many people would like the worker supervising their child to be paid a decent salary, but where exactly is that money going to come from? Democrats have an answer: the federal government.

Overall, the bill’s supporters think critics are focusing too much on the phase-in period and are unfairly downplaying the downstream beneficial effects that a significant amount of federal funds allocated to child care services would have on the sector in the long term. “The number one supply issue is that we pay providers poverty wages,” says Melissa Boteach, vice president for income security and child care at the National Women’s Law Center. “Billions of federal dollars can help change that.”

One final potential issue with the bill is that, as currently written, are not forever; the billions of federal dollars allocated to child care is set to expire after 2027. Of course, supporters of the plan would like to make the money permanent, but moderate Democrats have demanded the bill’s cost be reduced, and the party overall has been reluctant to omit more of the other programs currently in the bill. The expiration date makes the program look cheaper on paper. Most Democrats hope that, in practice, the program will prove popular, and a future president and Congress will pass a new law extending it rather than letting it vanish.