Thursday, October 14, 2021

Childcare in "Build Back Better"

Because childcare is said to be a highlight of the “Build Back Better” bill, I read through the bill and made notes here as to childcare provisions and some of their economic incentives, aside from the obvious that new spending must someday be financed with taxes.  You will be surprised at the disparity between what the bill incentivizes and what we're told it will do.

[For provisions less related to childcare, see my earlier summary.]

Section 23001 of the "Build Back Better" bill would use the Obamacare mold to create a federal childcare program.
  • Low-cost (a.k.a., "low quality") childcare would be prohibited unless the provider were to forgo all federal dollars, which would involve something like having zero children from a family at or below $200K annual income.
    • Childcare workers would have to be paid as much as elementary-school teachers.
    • According to the Bureau of Labor Statistics, elementary school teachers earned an average of $63,930 annually in 2019.
    • The same BLS data show childcare workers earning an average of $25,510.  I.e., under BBB childcare would have to pay them 151% more.
    • A 151% increase is similar to the increase in individual health insurance premiums that occurred when Obamacare came into effect.
    • See also Section 132002f (which appears to be eliminated in the Nov 3 revision).  Complying with all of these statutes, certifications, and the implementing final rules will add administrative costs to childcare.  E.g., just as physicians today complain about paperwork taking away from their real job, so will childcare providers under BBB.
    • Much of the extant supply of childcare is provided at a church or other faith-based location, but federal funds for expanding supply cannot be used there (this prohibition is about 80% of the way through the long Section 23001).  The result will be creating supply at locations that could not otherwise pass the market test because they are too costly or offer insufficient quality (by parents' assessment).    
    • When quality regulation was tried in Quebec, the results were opposite of advertized intentions:
      • there were “increases in early childhood anxiety and aggression”
      • “there was a large, significant, negative shock to the preschool, noncognitive development and health of children exposed to the new program, with little measured impact on cognitive skills.”
      • “worse health, lower life satisfaction, and higher crime rates later in life.”
      • HT Ryan Bourne
  • Families would pay on a sliding scale.  i.e., earning more means paying more for the same childcare.
    • Above 150% median family income ($102K annually), the implicit marginal tax rate would be 7% until the benefit is exhausted.
      • For a family with two children, they would face the 7 percent rate until income was beyond $400K
    • Between 75% and 150% median, the implicit marginal tax rate is about 14 percent.
    • The sliding scale is based on HOUSEHOLD income: the implicit marriage tax could easily be $20K per year that a couple has children under age 5.  [this is not the only marriage tax in BBB]
      • The unintended (?) consequences do not stop there.  Adding to the pool of "deadbeat dads" further discourages work because of the "overhang" (an economics term) of mounting child support debt.  As a UWisconsin study put it, "greater debt has a substantial negative effect on both fathers’ formal employment and child support payments."  See also this article.  
      • For most families, the childcare costs of having additional children 0-4 would be zero.  This will affect the number and spacing of births , and by this channel could reduce employment of mothers.  Also incentives to keep cousins in the household.
  • Although there are loopholes, child eligibility requires a parent to be employed (part-time is OK), self-employed, engaged in job search, job training, school, or on medical leave.  It’s OK if a second parent does no work (but see the marriage tax above).
Section 23002 creates a universal public pre-school program
  • no tuition charged to parents
  • applies to exactly two cohorts of children (age 3 and age 4).
Section 132001: Federal funding for childcare information services (i.e., finding childcare).  Less than 1/1000th of the funds spent in Sections 23001 and 23002.

Sections 137102f: Expanded Child Tax Credit (CTC).  See here for a detailed analysis of how the expansions discourage work, especially among single mothers.

Section 137201: Expanded Child and Dependent Care Tax Credit (CDCTC, not to be confused with the CTC).  This credit is tied to employment.  On the other hand, it is phaseout with income.  Therefore its net effect on national employment (not counting the tax increases that will eventually be needed to pay for it) will be less than the effects cited above.  Section 137202 is a similar provision administered on the employer side, but is not phased out with income and therefore expanding it is more likely to encourage work.  However, this provision is apparently rarely used by employers: see CBO's revenue score from the American Rescue Plan, which had the same provision except on a temporary basis.

Section 137301: a per-employee business credit of up to $5,000 annually is available for operators of childcare facilities (I don't think a household employing a nanny would count).  This might, to a small degree, offset the higher wages that such facilities would be required to pay (recall the 151% increase cited above).   [This was eliminated from later drafts]

1 comment:

Richard Maurice said...

Please provide an estimate of the overall macro effects of Biden's vaccine mandate on firms of 100 employees.


Richard Maurice