Core Problems with President Trump’s Child Care Proposals
Five aspects of the president’s child care plan drive its inequities.
1. The plan heavily relies on a new above-the-line deduction that is intrinsically regressive, driving larger benefits to higher-income households. The value of a deduction equals the expenses deducted multiplied by the taxpayer’s marginal tax rate. Because higher-income households face higher marginal tax rates, a deduction is worth much more for wealthier taxpayers per dollar spent on child care. The deduction would be worthless to the roughly 44 percent of families who owe no federal income tax in a given year (though almost all owe federal payroll tax or pay positive federal income taxes over time).
2. The proposed …show more content…
The president’s proposed expansion to DCSAs would probably exacerbate the regressivity of his plan. Tax incentives for savings tend to be some of the most regressive provisions in the tax code. For example, the top 20 percent of households receive over two-thirds of the benefits from tax preferences for retirement savings. This skewing toward the wealthy occurs because higher-income taxpayers can afford to save at higher rates and because they are more likely to take up complicated tax benefits that require tax advice. Further, like the president’s DCSA proposal, the actual value of the tax preferences for saving is generally larger for wealthier taxpayers when one takes into account the associated deductions, exclusions, and credits.
Beyond their inequitable effects, the president’s child care proposals are poorly designed on other grounds. Under his child care plan, families could qualify for multiple child care benefits. Selecting the highest benefit could require calculating the potential benefit of the current CDCTC, the president’s new deduction, and the new refundable credit. Experience with other complicated tax provisions has shown that requiring taxpayers to optimize among several mutually exclusive tax benefits typically results in many, especially working-class, taxpayers leaving substantial tax benefits on the table (GAO …show more content…
The plan includes a refundable tax credit for child care expenses, which allows more low-income families to receive child care assistance than current benefits do . But despite these steps forward, the package would direct most benefits toward wealthier households and would provide scant benefits for the working-class families it purportedly helps. This is all the more troubling when one considers the astonishing price tag of the president’s overall tax plan—more than $6 trillion over 10 years—and that its benefits are even more concentrated on the wealthiest Americans than his child care proposals.
The most important tax policy change the president could make to improve his proposals for the working class would be to make his overall tax plan far more progressive and fiscally responsible. Doing so would ensure that working-class parents actually benefit materially, and would prevent a large increase in deficits that would create pressure to cut critical programs working-class families rely upon—like food assistance, housing, and health
Five aspects of the president’s child care plan drive its inequities.
1. The plan heavily relies on a new above-the-line deduction that is intrinsically regressive, driving larger benefits to higher-income households. The value of a deduction equals the expenses deducted multiplied by the taxpayer’s marginal tax rate. Because higher-income households face higher marginal tax rates, a deduction is worth much more for wealthier taxpayers per dollar spent on child care. The deduction would be worthless to the roughly 44 percent of families who owe no federal income tax in a given year (though almost all owe federal payroll tax or pay positive federal income taxes over time).
2. The proposed …show more content…
The president’s proposed expansion to DCSAs would probably exacerbate the regressivity of his plan. Tax incentives for savings tend to be some of the most regressive provisions in the tax code. For example, the top 20 percent of households receive over two-thirds of the benefits from tax preferences for retirement savings. This skewing toward the wealthy occurs because higher-income taxpayers can afford to save at higher rates and because they are more likely to take up complicated tax benefits that require tax advice. Further, like the president’s DCSA proposal, the actual value of the tax preferences for saving is generally larger for wealthier taxpayers when one takes into account the associated deductions, exclusions, and credits.
Beyond their inequitable effects, the president’s child care proposals are poorly designed on other grounds. Under his child care plan, families could qualify for multiple child care benefits. Selecting the highest benefit could require calculating the potential benefit of the current CDCTC, the president’s new deduction, and the new refundable credit. Experience with other complicated tax provisions has shown that requiring taxpayers to optimize among several mutually exclusive tax benefits typically results in many, especially working-class, taxpayers leaving substantial tax benefits on the table (GAO …show more content…
The plan includes a refundable tax credit for child care expenses, which allows more low-income families to receive child care assistance than current benefits do . But despite these steps forward, the package would direct most benefits toward wealthier households and would provide scant benefits for the working-class families it purportedly helps. This is all the more troubling when one considers the astonishing price tag of the president’s overall tax plan—more than $6 trillion over 10 years—and that its benefits are even more concentrated on the wealthiest Americans than his child care proposals.
The most important tax policy change the president could make to improve his proposals for the working class would be to make his overall tax plan far more progressive and fiscally responsible. Doing so would ensure that working-class parents actually benefit materially, and would prevent a large increase in deficits that would create pressure to cut critical programs working-class families rely upon—like food assistance, housing, and health