Are we even trying to solve the child care problem? - Albuquerque Journal

Are we even trying to solve the child care problem?

The tax law is used to advance, or discourage, many social and economic objectives.

This is not a bad thing, and has suited both sides of the political aisle in different ways.

It is often difficult to find the target audience to subsidize an activity. A tax subsidy allows the audience to identify itself.

Tax credits can be refundable or not. If refundable, even those who might not otherwise file a tax return can benefit by the simple act of filing.

For any tax subsidy, some support it and others not. This means that majority rules. This, too, is not a bad thing. We are government. We should reflect our values.

Now to the focus of today’s column. The pandemic has had a significant effect on workforce participation by women. This is well documented.

The “supply chain” problems that we face include labor participation. Labor participation also affects the supply-side contributions to inflation. Economic growth depends on growth in the labor force.

Why did the pandemic hit women, in particular, so hard? I’ll bet you already know. Women’s labor participation, in particular, is impacted by the availability and affordability of child care.

Half of all U.S. families, over 6.45 million people, report difficulty in finding child care. Lack of child care affects employment, which affects economic growth.

The child care challenge is not just about employment. It is also about hours worked and willingness to seek promotions that may place greater strains on family.

The U.S. birth rate (births per 1,000) has fallen by one-third since 1967. It is half what it was in 1954. Women and immigrants have helped to fill this shortfall in the labor force.

Now we are trying to reduce immigration. If that’s what we want, it enhances the need to encourage women’s participation in the workforce.

Child care costs have grown at a significantly higher rate than wages. Even so, availability is strained.

When asked why they cannot find child care, 31% of mothers say costs are too high and 27% say they cannot find open slots. Things are worst for children under age 3.

Child care availability has dropped labor force participation of women from 89% to 77%. The same problem has dropped men’s participation from 96% to 95%.

Some think women should not work. However, from a broad societal aspect, that is, the majority that set our policies, the toothpaste is out of the tube.

I asked two professional women what their costs are. One, a CPA, pays $1,700 per month for one child. The other, a teacher, pays $1,730 per month for two children in a district-subsidized facility.

The CPA has considered changing. However, all quality providers in her area have lengthy waiting lists. If “we” think we have a problem, what does our tax policy do to help?

An employee may commit $5,000 each year to a plan that pays dependent care with pre-tax dollars. Otherwise, a tax credit of 20% to 35%, depending on income, can be claimed for as much as $6,000 of costs (two children). In 2021, and only in 2021, Congress raised the $5,000 exclusion to $10,500. The credit was also changed to zero to 50%, again based on income, for as much as $16,000 of costs. The credit was made refundable (no tax liability needed) for the first time.

Therefore, “we” essentially more than doubled the tax subsidy for child care in 2021. A lower income family could see their 2021 subsidy increase from $2,100 to $8,000.

Labor force participation of lower-income women is particularly sensitive to tax subsidies. The 2021 change was a big deal.

It’s now 2022. We’re back to the old rules. Why is that? I have no answer. I do know that child care availability and affordability did not change from 2021 to 2022.

The birth rate is down. We’re trying to choke off immigration. We’re reducing women’s workforce participation.

Tax benefits for child care are offset with labor tax revenues. Affordable child care adds tax revenues from economic growth. Did we stop liking these things in 2022?

Child care is not a personal luxury item. Some think it should be a fully deductible expense for the production of income. Even if we don’t go that big, right now it seems like we’re not even trying.

James R. Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.

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