President Clinton's current proposal to subsidize formal
day-care use and penalize parental care of children is irrational
and unfair. Under Clinton's plan, middle-class parents who hire
others to care for their children will receive tax cuts to
subsidize day-care costs, but parents who make a great financial
sacrifice so that one parent can remain at home to care for their
young children will be denied tax relief. Indeed, families who care
for their own children will be taxed to pay for day care used by
more affluent families. This punitive plan, which discriminates
against parental care of children to promote and subsidize paid
non-parental child rearing, has no place in public policy.
Middle-class families with children are severely overtaxed by
the federal government. They are the victims of decades of
tax-and-spend policies imposed by liberal advocates of big
government. If Congress wants to help families and children, it
should adopt an inclusive and non-discriminatory policy that
provides badly needed tax relief to all working and middle-class
families with young children. It should not discriminate in favor
of one group of parents who pay for professional day care.
The Clinton Plan. The Clinton proposal targets over $20 billion
of the projected budget surplus on one kind of service: the care of
children outside of the family environment and away from parents.
It reflects a desire to expand the welfare state rather than return
surplus tax dollars to hardworking and overtaxed families with
children. Although the President's day care proposal sounds
family-friendly, closer inspection reveals that the proposed
spending would not increase parents' options to spend time with
their children, to acquire flexibility in their work schedules, or
to provide the best child care arrangements possible. It would only
expand both the day-care industry and the government bureaucracy
that regulates it.
The Tax Bite on Families with Children. During the baby-boom
era, when most of today's parents were born, the federal government
had a deliberately low tax policy which was friendly to families
and children. But after decades of tax-and-spend liberalism, that
family-friendly policy has long since disappeared. In 1950, the
typical family of four paid about 5 percent of its income in taxes
to the federal government. Today, that same family would pay
roughly 23 percent of its income in direct federal taxes. Adding
state, local, and indirect taxes raises the tax bite to 37 percent.
In the average two-earner married-couple family, the mother works
not to raise her family's standard of living, but primarily to pay
for the enormous tax increases imposed by decades of government
Studies show that most parents would prefer to work less and
spend more time with their children if they could afford to do so.
By subsidizing non-parental care for children rather than providing
broad family tax relief, Clinton is pushing parents in a direction
they do not wish to go. By proposing a discriminatory policy which
will encourage even less parental time with children, Clinton is
ignoring the preferences and needs of most parents.
New Spending. In addition to providing tax relief to
middle-class parents who use day care, Clinton is proposing
billions in new government day-care spending through such programs
as the Child Care and Child Development Block Grant and Head Start.
In fact, two-thirds of the funds under the Clinton plan are
allocated to new government spending, not tax reduction.
Presumably, this spending will be directed at former welfare
mothers and other low-income working families who do not pay taxes
and therefore cannot benefit from tax relief. However, this new
government spending is unnecessary. As a result of welfare reform,
state governments currently have large surpluses that may be used
to pay for day care for low-income working families; these funds
will be more than sufficient to meet future needs.
What Congress Should Do. Congress is moving into an era of
budgetary surplus for the first time in 40 years. It is critical
that future revenue surpluses be devoted to tax relief, not to new
government spending as the President hopes. Congress should provide
tax relief to parents, not new spending directed to day-care
centers. And in providing that tax relief, Congress should allow
parents to decide how best to care for their children; it should
aim to expand rather than narrow their options. Furthermore,
Congress should treat all working families with preschool children
equally. Under no circumstances should Congress discriminate
against families who make a financial sacrifice so that one parent
can remain at home (either full-time or part-time). Nor should paid
professional day care be favored over the unpaid care given by the
Congress recently took a small step toward rolling back punitive
taxation of families with children by enacting a tax credit for
children under the age of 18. The credit will be worth $400 per
child in 1998 and $500 in each subsequent year. Congress should
build on this foundation by providing additional badly needed tax
relief to working families with children. It could do this in a
number of ways:
• Congress should consider raising the current $500 per
child credit to $1,000 for each child under the age of six (the
present $500 tax credit for all children and a new $500 credit for
those under six).
• Congress should consider universalizing the existing
dependent care tax credit currently available only to families who
pay for non-parental child care. A reasonable policy would increase
the value of this credit and make it available to all taxpaying
families with preschool children.
• Congress should amend the Alternative Minimum Tax (AMT),
which will negate the value of the existing $400 per child credit
for many families. The AMT treats children as invidious tax
loopholes. Many families will be hit by it this year for the first
time, just as the new $400 child tax credit goes into effect. The
AMT should be modified so that it does not override the exemptions
and credits for children in existing law.
• Many mothers reluctantly seek employment in large
companies to obtain health insurance for their children. Congress
should ease pressures on parents and broaden the availability of
health insurance by eliminating tax discrimination against health
insurance that is purchased by the self-employed or those working
in small firms without group coverage.
• Parents with children would benefit from greater
employment flexibility and work that is more compatible with family
life. To provide such flexibility in the workplace without imposing
harmful burdens on employers, Congress should ease current labor
restrictions on work schedules and overtime pay. It should permit
parents who are forced to work long hours to request compensatory
time in lieu of mandatory overtime pay if they so choose.
President Clinton's plan to enlarge and enrich the U.S. day-care
industry is discriminatory and fails to address the real wants and
needs of parents and children. Congress should reject this plan and
instead provide broad-based tax reductions to all taxpaying
families with children.