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Democrats’ child care gamble

President Joe Biden greets a group of children at the Capitol Child Development Center in Hartford, Connecticut, on October 15. | Brendan Smialowski/AFP via Getty Images

Will Democrats’ child care plan help millions, or throw the system into chaos?

The child care plan in President Joe Biden’s Build Back Better Act is arguably the bill’s most ambitious proposal. It could be its most challenging to implement, and politically perilous, as well.

The plan aims to help millions of families with children under age 6 get affordable child care for the first time, funding most or all of the cost of their care at licensed providers. The bill would also steer an influx of federal cash to boost wages for child care workers and spur the opening or expansion of child care facilities.

“This is game changing, and it’s gotten lost in the shuffle at times,” says Julie Kashen, director for women’s economic justice at the Century Foundation. “It guarantees families access to affordable child care, something that does not currently exist.”

But critics of a variety of political persuasions — left, centrist, and conservative — say the plan could actually drive up prices for many parents, and may lead to a shortage of licensed child care options as millions of parents enter an already-crowded market for the first time.

Per the plan, low- and lower-middle income families would get generous federal subsidies to help them purchase child care at licensed providers right away. Since many of those families currently don’t use licensed child care, that would mean significant new demand for care that’s already difficult or expensive to secure in much of the country. The plan would “dramatically increase demand for child-care services as newly subsidized users pour into the sector,” Matt Bruenig, founder of the People’s Policy Project, a left-leaning think tank, writes at the Atlantic.

If the supply of providers can’t keep up with this new demand, that’s a recipe for shortages or price hikes. Shortages would bedevil everyone. But price hikes would be a particular problem for middle- and upper-middle-class families. That’s because, the way the plan’s phase-in is designed, those families wouldn’t be eligible for subsidies just yet — and many won’t be until 2025. They’d have to pay any higher costs themselves, and could see their current child care arrangements thrown into chaos as changes ripple through the sector.

 Matt Roth/Washington Post via Getty Images
A teacher zips up the coat of a young child at Little Flowers Early Childhood and Development Center in Baltimore, Maryland, on January 12, 2021.

The bill’s drafters are aware of these concerns. “We don’t want a subsidy to nowhere,” says one Democratic aide, speaking on condition of anonymity, alluding to the worry that parents will be promised assistance they can’t actually use anywhere due to shortages. That’s why the bill also sends billions for states to use to increase the supply of child care over the next few years.

“The status quo of rising child care costs and waiting lists is not working for parents, and to fix it you do have to tackle the problems of cost and supply at once,” an aide for Sen. Patty Murray (D-WA), one of the architects of the plan, said. “That’s why this bill lowers more and more families’ child care costs over the first three years, while prioritizing helping states invest in opening new providers, increasing wages for the early childhood workforce, and adding slots.”

Ramping up supply is easier said than done, though. And there’s another catch: After 2027, the whole program would vanish unless a future Congress and president choose to pass a new law extending it.

“I’ve looked at a number of government programs over the years and usually I think there’s a way to make them work,” says Marc Goldwein of the Committee for a Responsible Federal Budget. “This one I worry about.”

The child care status quo

In the United States, in the years before kids are sent off to school, families are basically on their own in deciding what to do with them, in an economy and culture where both parents are increasingly expected to work.

Some parents stay home. Others recruit family members, friends, or neighbors, paid or unpaid, to watch their children. Others hire nannies. And some send their kids to the day care centers and smaller licensed home-based providers that make up the formal child care industry.

Reformers look at that industry and see several problems. A big one is that child care is very expensive. This hits low-income people hardest but burdens middle- and upper-middle-income people as well: The Center for American Progress estimated that the average yearly cost for center-based infant care (a particularly expensive type of care) is nearly $16,000; in some cities, the average cost can be as high as $24,000. This puts such care out of the price range of many families and drives women especially out of the workforce.

But there are other, interrelated problems. There isn’t enough licensed child care to meet demand in some areas, leading to many waiting lists and difficulty securing slots. Some child care is of low quality. Workers in the sector are generally paid very little.

Those problems have many roots, but one common one is that child care providers aren’t making enough money — not enough to pay workers decent wages or to spur a dramatic expansion of the industry. It’s a labor-intensive business where a certain ratio of workers to children is legally required, as well as other safety regulations that drive up costs. Bloomberg Businessweek’s Claire Suddath recently wrote about how child care is “the most broken business in America.”

“Today, parents and providers are essentially pitted against each other,” says Kashen. “Either providers are raising wages and parents can’t afford it, or parents can afford it and providers are paying poverty-level wages.” In theory many people would like the worker supervising their child to be paid a decent salary, but where exactly is that money going to come from?

Democrats have an answer: the federal government.

What the bill would do

At its core, the Build Back Better bill would devote a whole lot of federal funds to the child care sector — money to help families buy care, and money to the states to help them expand child care supply and improve its quality.

From the family end, the main goal is to cap child care expenses at a certain percentage of their yearly income by offering subsidies. For some, this would come as a coupon or voucher families could get from the government and redeem at licensed providers. For others, families would go to the state government to request subsidized slots that are already reserved at providers. The end result is the same: Subsidized families would only be responsible for paying a “copay,” not the full cost of care.

 Jeff Kowalsky/AFP via Getty Images
A 6-year-old child is comforted by her mother as she receives her first dose of the Pfizer/BioNTech Covid-19 vaccine on November 3, in Novi, Michigan.

The subsidies, which are calculated based on state median income levels by family size, are most generous for families with lower incomes, and they gradually get less generous as incomes rise. Let’s use a state median income of about $100,000 for a family of four for easy math (that’s about where it is in Wisconsin and several other states).

When fully phased in, in 2025, here’s how the subsidies would work for a family of four (according to the current version of the House bill).

  • Families of four with yearly income below $75,000 (75 percent of the median) will pay nothing for child care — the government pays for it all.
  • Families of four making $100,000 (100 percent of the median) will have a copayment of about $2,000 per year (the government pays for any expenses above that).
  • Families of four making $150,000 (150 percent of the median) will have costs capped at about $10,500 (7 percent of their yearly income).
  • Families of four making $250,000 (250 percent of the median) will have their costs capped at about $17,500 (7 percent of their yearly income).
  • Families of four making more than $250,000 (above 250 percent of the median) will not be eligible for any subsidies. They’d have to pay the full cost of child care, as they do now. (This is what’s known as a benefit cliff, where a slight increase in income leads to the loss of potentially thousands of dollars in benefits.)

All that would be quite a big deal for most families with young children — the federal government would newly be picking up most of their child care costs.

”Look at what’s happening on the ground right now,” the Democratic aide says. “The cost for child care is too high and it’s only going to increase with and without this bill. Right now it’s causing providers to underpay their staff or close those doors. We’re addressing that issue by shifting the costs to the government, with those subsidies. That is really, really meaningful.”

But there is also some fine print.

First, there’s the issue of who will be eligible for this subsidized help. Some families won’t qualify, since there’s an “activity test” that will likely exclude some of the very poor. Others will qualify eventually — but not right away because of the plan’s gradual rollout. Only families at or below the state median income will be guaranteed subsidies right away; those with higher incomes will have to wait one to three years.

 Michael M. Santiago/Getty Images
President Joe Biden salutes a service member during a speech about his Build Back Better agenda on October 25.

Second, a great deal of discretion is left to state governments, including whether they’ll participate in the plan at all. In practice, red states could opt out, especially because states would be expected to pick up a proportion of the costs starting in 2025.

Finally, as written, all of this spending would end after 2027. No one actually thinks this is a good idea or a good way to design policy. But it’s the way Democrats have chosen to address concerns from moderates about the bill’s overall price tag.

What skeptics fear will happen

The precursor to this child care plan, the Child Care for Working Families Act, was crafted back in 2017 by advocates for parents and industry providers working with the top Democrats on the relevant congressional committees — Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA). The core ideas were that most families shouldn’t have to pay more than 7 percent of their income for child care, and that providers in the industry needed financial help. Rather than creating a new publicly run child care system akin to public schools, the proposal involved steering a ton of federal money in the industry’s direction.

Quickly, this became something like the consensus Democratic Party policy on the issue, backed by positive analyses from think tanks like the Center for American Progress. Many 2020 Democratic candidates, including Joe Biden, adopted something like it as part of their campaigns. And once Biden was in office, it made it into his American Families Plan and then into the reconciliation bill — the Build Back Better Act.

In all that time, the proposal received little scrutiny outside the community of advocates and providers that crafted it. But that changed last month when liberal wonkworld was set aflame by a series of critiques from Matt Bruenig of the People’s Policy Project, who argued that the bill would, in practice, sharply raise child care costs for middle-class families over the next few years.

Here’s the basic issue: It’s already quite difficult and expensive to find child care in much of the country. Long-running supply problems were exacerbated by the pandemic; about 110,000 child care workers have left the labor force in the past year and a half. But if the plan passes, millions of families in the bottom half of the income distribution, most of whom currently do not use licensed child care, would get generous subsidies right away. That would likely mean a surge in demand for care, and if supply can’t keep up, price hikes and/or shortages would ensue.

Shortages would be a problem for everyone, but because of the way the subsidies work, price hikes wouldn’t be a problem for low-income families. Unsubsidized families would not be so lucky. And in the first few years of the program, during the phase-in, many in the middle and upper-middle class would not yet be eligible for subsidies and would have to pay those potentially sharply higher costs themselves.

Democratic staffers involved in crafting the bill told me they know meeting the new demand they’re stoking will be a challenge — you can’t wave a magic wand and make child care supply expand overnight. So they want to prioritize people who need help most initially.

“If you give everyone an uncapped entitlement all at once, we know what will happen in who will get the slots and who will get shut out,” says another aide who spoke on condition of anonymity, arguing that comparatively better-off families would be better able to game the system and the poor would lose out. “A program that would make everyone eligible at phase one and hand them a voucher they can’t use anywhere would be a policy and political disaster.”

Now, Democrats’ hope is that the supply of care will expand, because during this phase-in period, money is allotted to states for that purpose. States can use it to make grants to help providers start up or expand services, or to help with recruiting costs, and so on. But it’s unclear that will be enough to prevent the problem of shortages or rising prices in the short term. “You can’t create new child care workers from thin air,” says Samuel Hammond of the Niskanen Center. “At best you can try to pull them from other sectors.”

 Chandan Khanna/AFP via Getty Images
A mother adjusts her child’s face mask at the St. Lawrence Catholic School in August, in Miami, Florida.

Furthermore, the limited subsidies early on create a new political issue: middle-class families may be furious about seeing rising short-term costs. After all, Democrats had promised more affordable child care for all — not soaring prices or shortages in the short term while they spend a few years setting up a better system. (Many parents’ kids will age out of even needing care before they’re eligible for subsidies.)

If this transpires, the middle- and upper-middle-income parents who’d be hit hardest are also those who tend to have disproportionate power in the political system — they’re more likely to vote and more adept at making their outrage known. This resembles Obamacare, where many people who saw their existing insurance plans disrupted during the phase-in of the new system were furious.

So much hinges on how quickly this promised new supply of child care can materialize. And no one really knows the answer to that. “Building supply is not going to be easy,” says Rasheed Malik, associate director of research for early childhood policy at the Center for American Progress. “There are a lot of variables that are unknown at this point, and we can’t fully game out what is going to happen. But I think that this is sufficiently flexible and smartly designed to try and eventually deal with the challenges that will arise.”

One aspect of the flexibility is that states have leeway to devote some of their funds to either more subsidy spending — potentially for upper-middle-income families if they think it necessary — or for supply-building in these early years.

Is it better than the status quo?

Overall, the bill’s supporters think critics are focusing too much on the phase-in period and are unfairly downplaying the game-changing effects that a truckload of federal money would have on the sector in the long term. “The number one supply issue is that we pay providers poverty wages,” says Melissa Boteach, vice president for income security and child care at the National Women’s Law Center. Billions of federal dollars can help change that.

But that gets to the other pesky issue with the bill — that, as currently written, those billions won’t be around forever, since the child care program is set to expire after 2027. Of course, supporters of the plan would like to make the money permanent, but moderate Democrats have demanded the bill’s cost be reduced, and the party overall has been reluctant to jettison more of the other programs currently in the bill. The expiration date makes the program look cheaper on paper.

Most Democrats hope that, in practice, the program will prove popular, and a future president and Congress will pass a new law extending it rather than letting it vanish. Still, it isn’t particularly likely Democrats will still control the entire federal government by 2027. Would Republicans truly agree to a new law continuing Biden’s child care program?

The answer may depend on whether red states actually accept and come to rely on the funds — and on whether implementation goes well or poorly in general. Still, those considering expanding or setting up new child care businesses might be wary about those federal funds being set to vanish.

Like the rest of the program, it’s a gamble. But supporters of the bill say that, compared to the status quo, it’s a gamble worth taking.

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