The Economist explains
What will Joe Biden’s spending bill do for child care in America?
Subsidies would expand access—though they may have unintended consequences
THE PANDEMIC put America’s child-care industry in time out. Demand suffered as parents kept their kids at home. So did supply: staff shortages and covid-safety costs forced many centres to shut, with a third closed in April. Yet covid demonstrated the sector’s importance—not least to mothers. During the pandemic they have been more likely to leave the workforce than fathers or women without dependent children. President Joe Biden has promised to make child care less burdensome, noting that he could not afford it as a young parent on a senator’s salary. In its current form his social-spending bill, which he hopes Congress will pass before Christmas, would dish out up to $400bn on child care and universal pre-kindergarten over six years. How will it work?
High labour costs, rents and regulatory requirements make child care expensive. And the American government provides much less help to parents than many other rich countries do (see chart): it spends 0.3% of GDP on child care and pre-primary education compared with an OECD average of 0.7%. Families with children under five years old that pay for child care spent on average 13% of their income in 2017 on it. That is far more than what the government deems affordable: 7%. The result is comparatively low enrolment rates (although some parents, especially non-white Americans, prefer informal, family-based care). America has the second lowest share of four-year-olds in pre-primary education in the OECD—just 64%.
Mr Biden’s spending bill would raise child-care subsidies for parents of children aged five and under. In 2019, about half of working families were eligible for a subsidy though only 6% actually got one. The share of eligible families would jump to 93% under the new proposals. Subsidies will be set along a sliding scale, such that no family making less than two and a half times their state’s median family income pays more than 7% of their earnings on care. Those making less than 75% of the median would pay nothing starting next year. Subsidies for the rest would be phased in by 2025. Separately, Mr Biden’s bill would entitle all three- and four-year-olds to free pre-kindergarten.
States would have to opt in. They will then pay a tenth of the cost, with the federal government covering the rest. Some conservative states would probably refuse. Mitch McConell, the highest-ranking Republican senator, predicted that states will not want to be “socialist guinea pigs” in Mr Biden’s “toddler takeover”. Opt-outs will limit the programme’s reach. And, to lower the bill’s cost, funding expires at the end of 2027. Democrats are gambling that by then voters will be too attached to it to see it disappear.
The scheme’s design will probably have unintended consequences. Eligibility cut-offs, or “subsidy cliffs”, could incentivise people to earn less to get benefits. And it could push up the market price of care. The bill mandates wage rises for workers in the sector after a few years to match those of primary-school teachers, whose median annual pay is $60,660. Child-care workers’ salaries could more than double: their median pay now is $25,460. Meanwhile, supply will struggle to meet demand from lots of newly subsidised parents. (The programme allocates $25bn to states in the first three years to boost supply or improve quality as they see fit.) Families whose subsidies don’t kick in immediately or who earn too much to qualify could end up paying more. Critics of the scheme raise other complaints, such as its lack of support for informal care. Rather than create a tangle of subsidies, they argue, better to pay families directly through a more generous child tax credit and let each decide how to spend it.
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