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Helping Middle Class Families with Soaring Child Care Costs

Paying for child care is causing a strain on middle class family budgets. This week, the Middle Class Task Force unveiled a series of initiatives to help with soaring child care costs.

This week, the Middle Class Task Force unveiled a series of initiatives in the President’s FY 11 budget aimed at helping families with soaring child care costs, balancing work with caregiving, paying for college and saving for retirement.   These are costs that have risen dramatically for families at a time when their incomes have not. 
Arguably no one is more familiar with the strain on family budgets than families paying for child care. The two-thirds of families headed by either two working parents or a single working parent know all too well that child care costs can be higher than rent or a house payment. The cost of child care has grown twice as fast as the median income of families with children since 2000.  Full time infant care often costs more than $10,000 per year – or higher.   Of course, the price of child care varies depending on where you live, the number of kids you have in care, and the type of child care your kids receive – in-home care is generally less expensive than day care; care for older kids is usually less expensive than care for infants.  But the average yearly costs are still hefty - ranging between $4,000 and $15,000 for infants, and $4,000 and $11,000 for 4-year-olds.  In 39 states, child care fees are higher than a year’s tuition at a four year public college.

To help these families, the Middle Class Task Force is proposing an expansion of the Child Care and Dependent Care Tax Credit. For families making more than $43,000 a year, this tax credit currently covers only 20 percent of either $3,000 in expenses for one child or $6,000 in expenses for two or more children.  So the maximum credit is $1,200.  The credit has only been increased once in 28 years and is not indexed for inflation. We’re proposing to increase the credit to 35 percent of child care expenses for all families making between $43,000 and $85,000. So now, the families above would get $2,100 instead of $1,200.   Families making between $85,000 and $115,000 would see a credit increase as well, as the rate is phased down from 35 percent to 20 percent. 

Here’s how it will work for most families – when they file their income taxes they will be able to use the credit against their tax liability. For those who pay taxes directly out of their paycheck, the tax credit may count toward a tax refund.  

Because the credit is not refundable, if you don’t have any tax liability then you won’t get it. That’s why the Middle Class Task Force is also recommending $1.6 billion in child care funding for the Child Care and Development Fund, which provides direct assistance to working families who need help paying for child care. The increase will allow the program to serve an additional 235,000 children
As Mark Ginsberg, from the National Association for the Education of Young Children noted, “Together, these budget requests provide an economic as well as education benefit to individual children and society as a whole.” Data shows that quality early childhood education substantially increases children’s readiness for school.

Heather Boushey and Ann O’Leary of the Center for American Progress called the Middle Class Task Force announcement “a critical first step toward job stability for the millions of American workers who are one step away from losing their job due to breakdowns in family care arrangements.”

We recognize that these investments in child care address only part of the very real challenges of balancing work and family – and that more, such as paid sick leave and greater flexibility, will also help. The Task Force plans to continue to work on these issues in the coming months. 

Terrell McSweeny is Domestic Policy Advisor to the Vice President