The Biggest Permanent Change to Child Care Tax Policy in Over Two Decades
Thanks to Sen. Katie Britt, the roughly 45% of families that use paid child care will benefit from the "One, Big, Beautiful Bill"
Okay, come on now — you’re not actually going to root against Big Dumper (the Seattle Mariners’ switch-hitting catcher currently leading the Major Leagues in home runs) to become the Home Run Derby champ this Monday, are you? For now, if it’s Friday, it’s Family Matters.
For the First Time in Forever: Child care tax breaks got bumped up in OBBBA
Reductio ad absurdum: Circuit court judge tries to restrain Congress
It’s Me, Hi: Family Studies, NOTUS, EWTN News
Parting Shots
For the First Time in Forever
Some federal tax provisions adjust for inflation — every year they are bumped up to account for the rising cost of living. Others are static, stuck in place until Congress deems to pay them heed.
In 2017, for example, the Child Tax Credit was statutorily doubled from $1,000 to $2,000, where it was frozen in place as the economy went through its highest rate of inflation since the 1970s. By this year, the “real” value of the credit had fallen by 25 percent relative to what $2,000 was worth in 2017. In the “One, Big, Beautiful Bill Act,” Congress did bump the CTC up to $2,200 (less, in real terms, than what was worth in 2017), but also indexed it for inflation, meaning future increases to account for the cost of living will be automatic.
But if the CTC had to wait through most of two presidential terms to see any kind of bump (Covid excepted), it has nothing on the long, cold winter experienced by the Child and Dependent Care Tax Credit (CDCTC), which allows families in which all parents are working to deduct a portion of their child care expenses from their taxes.1 The amount of credit parents are able to claim had been left where it was set in 2001 (again, aside from the American Rescue Plan’s supercharging of the credit, which saw the average benefit more than triple for one year). A credit that, for most families, was worth $600 per child when it was set at the turn of the millennium was only worth about $330 in real terms today.
Amidst everything else that got packed into the “One, Big, Beautiful Bill,” the provisions relating to child care have frequently been overlooked. But, as Vox’s
reported, the child care tax provisions were included thanks to the efforts of Alabama Sen. Katie Britt, who has been a very vocal proponent of the idea that Republicans should stand up for parents and families. In particular, three adjustments to child care tax breaks can be attributed to Sen. Britt’s tireless work on the Senate side:For the first time since 2001, the CDCTC has been permanently expanded. The workings of the credit are a bit technical (good explainer), but in essence, families can claim a percentage of their child care expenses from their taxes, and for most families making over $43,000, that amount has been $600 per child up util now. Now, there will be an enhanced sliding scale, so that families making, say, $60,000 with child care expenses will be able to deduct $1,260 from their federal income taxes, and those with $100,000 in income will be able to deduct $1,050. Importantly, the CDCTC remains non-refundable, so even though low-income families are able to claim the highest dollar amount of credit ($1,470) on paper, an extremely small share (if any?) of those families are going to owe that much in federal income taxes to begin with.
For the first time since 2001, the tax credit made available to businesses that provide child care benefits (Section 45F) was permanently expanded. Previously, business that provided child care to employees could deduct a maximum of 25% of expenses as a tax credit, with a maximum capped at $150,000. The OBBBA boost brings that percentage to 40% of expenses (or 50%, for small businesses), and a total cap of $500,000 ($600,000 for small business.) This was long overdue, particularly given the shifts in the labor market since 2001. For larger employers, a $150,000 tax credit was essentially a rounding error — and conservatives should prefer rewarding companies that try to do right by their employees over supporting child care policies that put a thumb on the scale between home and work. I particularly like the idea of letting small businesses pool together to collect the credit, though a good GAO report from 2022 raises structural barriers to wide-spread adoption.
For the first time since 1986(!), the limit on Dependent Care Flexible Spending Accounts was permanently lifted to $7,500. In most cases, this allows employees to designate a portion of their pre-tax wages to pay for child care (including summer camps (so long as they are not overnight), babysitting (so long as the parent is working), preschool, after-school programs, etc.) If that $5,000 nominal value had been indexed to inflation since it was passed, it would be worth about $14,500 today.
These provisions help families that use paid child care. Roughly 45 percent of families with young kids use at least one paid child care arrangement (that does not necessarily mean full-time care). But, of course, 41 percent of kids have no regular non-parental care arrangement, and many who do have some kind of child care are cared for by relatives, at zero cost (page A-3; another smaller chunk are involved in programs, like Head Start, that cover the cost of care). And, unsurprisingly, the portion of the population who is most likely to rely on paid child care are upper-income households:
This is, obviously, partly an economic story. It doesn’t make sense for a low-income single mom making $15 an hour to pay for child care that may cost $12 an hour, rather than relying on an informal co-op or relative to keep an eye on baby. Upper-income households are more likely to have both parents in the workforce and thus more likely to have need of child care than those with a single breadwinner. But it’s also a story of preferences; studies repeatedly show that parents without a college degree have a stronger desire to stay home, or rely on relatives for care, than those in the higher-educated echelon.2 Thus — as always — the broadest, and best, form of pro-family support in the tax code is the Child Tax Credit, which is a much more egalitarian way of supporting families from many different walks of life.
But for those who do rely on it, child care is expensive — eye-bleedingly so, in high-cost parts of the country. And as a NORC-AP poll was just the latest illustration of, the general public thinks of making child care more affordable as a much more “normal” goal for policymakers than worrying about declining birthrates. Support for child care also suggests a latent connection to work, and the 1990s-era logic around welfare reform, that can cause conversations around the Child Tax Credit to sometimes get stuck in traps of universality or “redefining work” to include homemaking.3
So it makes sense for Republicans to chart out the correct proactive steps to improve child care choices beyond simply “increase the Child Tax Credit,” which is directionally correct, but insufficient — and, as we recently saw, something that remains somewhat of an uphill slog in this iteration of the G.O.P. Sen. Britt is correct to note the political and substantive win in championing benefits that do support working families (it would not surprise me at all, for example, to see a lot more midterm ads touting these provisions, than, say, expanding Section 199A for high-earners.) And, per Booth, Britt put in the legwork, meeting with “every member of the Senate Committee on Finance to pitch the child care tax credits as a political imperative.” Ultimately, her efforts secured roughly $16 billion in tax expenditures devoted to families who pay for child care.
My hesitation with substantial increases to the CDCTC is that it makes the ultimate goal of rationalizing the various child-related benefits in the tax code into a single, unified benefit harder to achieve. DCAPs, like other tax-advantaged accounts, can be a bit clunky administratively. And Section 45F is underutilized, though more than tripling its potential value to employers should help with take-up a little bit.
But even if the policy wins aren’t perfect, Britt’s example demonstrates what it looks like to devote political capital to supporting parents — something that more Republican lawmakers could learn from. And it shouldn’t take two-and-a-half decades before the next time lawmakers (from either party) figure out a way to improve programs that support working families.
Reductio ad absurdam
Republicans in Congress included a one-year ban on funding of Planned Parenthood in their omnibus bill. (This was scaled down from the initial, longer ban that ran afoul of the parliamentarian.) As the Wall Street Journal’s
noted, the provision ended up in the bill by President Donald Trump not necessarily because it was an issue he felt particularly strongly about, but because he was happy to let his political allies notch a significant (if temporary win): “With victories at the Supreme Court and in Congress, social conservatives are getting what they always wanted. This is a disorienting feeling.”Well, eventually a victory, anyway, after a jaw-dropping a temporary restraining order from a federal district judge, barring the Trump administration from enforcing the provision that defunds Planned Parenthood. The complaint alleges that Congress’ actions are based in animus against Planned Parenthood, and that defunding Planned Parenthood affiliates would have such devastating health consequences that Congress simply shouldn’t be allowed to go through with the duly-enacted legislation. The organization’s attorneys call OBBBA an illegal bill of attainder, saying the bill “punishes PPFA and its Members without a judicial trial” — a claim that would only be pass muster if Planned Parenthood could claim some kind corporate right to receive federal funding that was otherwise being denied.
On those grounds, apparently, a temporary restraining order was granted. As National Review’s
writes, “You can’t argue with the judge’s reasoning, because there isn’t any…It’s just a raw exercise of power.” As he points out, “If Congress lacks the power to decide when not to spend taxpayer money, it may as well disband.” Congress is free, in its wisdom, to make all sorts of funding decisions that may or may not lead to adverse social consequences. A federal district court judge is not granted veto power over them.The reasoning would clearly be seen as specious if it were coming from a contractor or subgrantee that wasn’t as politically favored as Planned Parenthood, which remains the nation’s largest abortion provider. There’s always been a delicate dance from the organization’s defenders, who like to point to the small share of abortions as a total of what the organization does (around 3 percent, claims the organization, if you tally up each individual pregnancy test, primary care referral, and pack of condoms distributed as a discrete “service.” ) But in short order, they will then argue that dropping a service that comprises such a small part of their clinic’s services would necessarily lead to closures of hundreds of Planned Parenthood locations nationwide. A one-year funding moratorium will be an interesting case to test whether or not that argument is true — and I suspect we will find out once this order is struck down, as it should be.
It’s Me, Hi
For Family Studies, I proposed that every state adjust their parking permitting to allow pregnant and new moms to be eligible for preferred disability parking:
“The idea is simple. Baby on board? You get preferred parking…Making pregnant women categorically eligible for a temporary parking permit for their final three months of pregnancy and first three months of postpartum recovery is a pro-life, pro-family policy that an intrepid state lawmaker could pass without relying on D.C. to do anything.”
My “Baby on Board” parking idea made the lead item of
’s weekly newsletter for National Review Online:“On Thursday, Patrick Brown from the Ethics and Public Policy Center proposed that parking spots for pregnant women be more of a thing. Great idea. One of the cruelest realities is being pregnant in places where it is 90-something degrees Fahrenheit and humid around this time of year. So, of course, how did some respond on X? By blasting Patrick for not understanding that pregnant women need exercise. I kid you not. (Good luck if he tries that with the Mrs. when she’s with child.)”
I spoke to Alex Roarty of NOTUS about the “One, Big, Beautiful Bill" and its political ramifications:
“I can’t see how they couldn’t pay a price for it, certainly for 2026, and depending on who the nominee is, for 2028 as well…Instinctually, it doesn’t really sit well with me. It’s not how I would operationalize a newly blue-collar working-class coalition.”
I was linked to in Ross Douthat’s post-mortem look at what the One, Big, Beautiful Bill failed to accomplish (New York Times):
“[T]he law’s extension of the child tax credit leaves it below the inflation-adjusted level established in Trump’s first term. This is especially egregious when you factor in the post-Roe v. Wade context, in which pro-life states have taken policy steps to support expectant mothers, but no national effort has emerged to match. Leaving abortion regulation to the states makes sense as a provisional political settlement, but leaving pro-family policy to the states (when pro-life states are poorer than average and harder-pressed to offer support) is a dereliction.”
In her column for Bloomberg, Abby McCloskey mentioned a recent Family Matters post on school choice scholarships in the “One, Big, Beautiful Bill.”
I participated in a panel discussion about bipartisan supports for families as part of the Convergence initiative with the National Governors Association.
Lastly, I spoke to EWTN’s Montse Alvarado about the “Big, Beautiful Bill,” both what it gets right and gets wrong for supporting families:
Parting Shots
My EPPC colleague Henry Olsen spotlights a new law in Iowa that requires high schools to teach students the basics of fetal development, a new front for the pro-life movement (National Review)
Carol Ryan reports that stubbornly high house prices and interest rates are pushing the number of first-time home buyers to record lows (Wall Street Journal)
Lauren Sausser and Katheryn Houghton report on the relatively rapid expansion of Medicaid coverage of doulas, including a proposal to do so in South Carolina (States Newsroom)
Punchbowl News suggests that Sen. Marcia Blackburn’s Kids Online Safety Act will not be brought to the House floor for a vote after her stand against the 10-year moratorium initially included in the OBBBA.
- celebrates that “one of the worst industries in America” received a well-deserved smackdown in the NetChoice v. Paxton decision handed down by the Supreme Court last month. (New York Times)
The Medicaid work requirement will not strengthen the program, improve the labor market, or kick lazy cheaters off government benefits,” writes Annie Lowrey. “Rather, it will saddle taxpayers with billions of dollars of new costs and low-income Americans with hundreds of millions of hours of busywork.” (The Atlantic)
- writes about the substantive successes of Gov. Glenn Youngkin’s deregulatory efforts in the Commonwealth of Virginia (National Review)
William Mills raises the question of the once-hot political topic of embryo-destructive research, and whether conservatives will take a stand on the question (Washington Examiner)
Kavitha Cardoza reports on the growth of and support for apprenticeship programs in Indiana (The Washington Post)
A new working paper from
and Phil Levine attribute declining birth rates to “shifting priorities,” rather than changes in household income or prices (NBER)In his write-up of the “One, Big, Beautiful Bill,” Tim Carney finds that “parents, as a group, came home empty-handed.” (Washington Examiner)
Claire Cain Miller highlights that many of the roles that young children see on a daily basis (child care worker, librarian, teachers, pediatricians) are disproportionately filled by women (New York Times)
- writes for his Substack that the post-Covid exodus of families from large cities seems to have stalled out:
I…don’t know about the term “DIMBY,” but I love the energy behind
’s piece on why in-home child care should be zoned by-right:
Comments and criticism both welcome, albeit not quite equally; send me a postcard, drop me a line, and then sign up for more content and analysis from EPPC scholars.
As previously covered in Family Matters, the CDCTC would be improved by requiring the household, rather than each individual parent, to meet the activity test in order to claim the credit. Parents who work a few hours on the side, or spend their time volunteering at the kids’ school, should be able to deduct the cost of their babysitting hours in the same way households with two full-time workers are able to.
“Desire,” of course, isn’t divorced from economic realities; it may well be that some would change their response if the option of free, high-quality, local, highly relational, values-driven, supportive, etc., child care were on the table. But
Some Republicans have proposed allowing stay-at-home parents to receive federal child care vouchers, which seems, to me, to take the wrong side of the question of whether we should consider the work of raising a family something that should receive a wage.