In President Donald Trump’s State of the Union address, he said his administration sought expanded federal funding for child care, and lauded “seven states” for eliminating the waiting list to receive this form of welfare. But policymakers should tread carefully. This benefit is a prime example of not just government policy, but Republican-authored government policy gone wrong.
About Child Care Welfare in the U.S.
In 1990, Congress passed the Child Care and Development Block Grant Act, and President George H.W. Bush signed it into law. It was later reauthorized and amended in 1996 and 2014. Since 1996, federal child-care programs were consolidated into one block grant program, the Child Care Development Fund, which appropriated block grants to states based on a formula contained in the legislation.
States can then supplement the program via state funds and some of their Temporary Assistance for Needy Families block grants. At the state level, the benefit is often called the Child Care Assistance Program (CCAP). Historically, many southern states have not added to the federal funding, and tend to have long CCAP waiting lists. But many states add significantly to the federal funding. For example, Minnesota receives about $70 million from the Child Care Development Fund block grant, but uses state monies and some funding from the Temporary Assistance for Needy Families to spend more than $250 million on the program annually.
The federal government is also upping funding for states’ child care subsidies, which the Trump administration has been calling for even before his 2020 State of the Union. In 2018, federal spending on the Child Care Development Fund hit over $5 billion, which nearly doubled federal spending on the program from the prior year.
Today, the program is prone to fraud, waste, and abuse, and it carries massive marriage penalties. Not all government intervention is evil, but policymakers must make thoughtful choices that “first, do no harm.” In the words of Douglas Besharov and Neil Gilbert, writing for R Street Institute:
We are struck by how thoughtlessly marriage penalties are created in contemporary programs and how difficult they are to undo. The benefit cliffs in child-care programs and, more recently, in the ACA may facilitate administration, but at a real cost to wise policy-making. In the face of changing marriage and family norms, social-welfare programs have to be planned with even greater care.
Marriage Penalties Hurt Kids More than Child Care Helps
Most concerning is that the child-care benefit has severe marriage penalties because two working-class adults earn much more than one working-class adult. And the program consistently counts both parents’ incomes only if they are married.
For example, in most states, the program has an income cutoff for eligibility at approximately $45,000 per year for a “two person family.” Under the program’s definition of a family, which must include an eligible child, this family would be just a mother and her infant. Let’s say the mother makes $35,000 per year. In this case, only the mother’s income counts toward eligibility, so she will receive child care assistance.
Yet if this mother is living with her child’s biological father, and volunteers that information to authorities, the father’s income would also count toward eligibility. The dad makes about $40,000 per year, meaning the parents make $75,000 per year combined. Because the eligibility cutoff for a “three person family” expands to only about $54,000, once the father’s income is counted, the mother no longer gets a child-care subsidy. In other words, the expansion of the eligibility threshold by only about $9,000 is meant to account for another child in the home, not another working adult.
These incomes are very common for two working-class adults, each having their first child and just starting their careers, especially since working-class women’s wages have outpaced those of many working-class men in the last several decades. Yet the mom doesn’t have to report that her child’s biological dad is living in the home with her.
Because U.S. welfare workers no longer do random home checkups, called “man in the house” rules, she can inaccurately report her living situation to authorities. All sorts of evidence indicates such misreporting is widespread. This mom can’t hide her marital status, however, because counties and states keep databases of marriages.
Even worse, if she has a live-in boyfriend who is not the child’s biological father — a situation that makes a child at least 10 times more likely to be the victim of abuse — the live-in boyfriend’s income is never counted toward program eligibility. In other words, on paper, the program disincentivizes biological dads from being with their kids. In practice, the program contains large marriage penalties.
How large? In Georgia, for a family with one infant and the man and woman each making $35,000 per year, marriage results in the loss of a benefit worth about $5,500 in child care costs. In Texas, if a couple with one infant child makes about $80,000, roughly split equally between the man and the woman, marriage adds another $5,000 in child care costs and makes up almost 90 percent of the overall marriage penalty this family faces from all non-health-care welfare (not that marriage penalties are higher if you look at Child Care Assistance Programs combined with other welfare programs, although CCAP often has the highest marriage penalties).
In Minnesota, because the cost of child care is so high, the overall marriage penalty for two adults and one infant child where both the man and woman make $30,000 per year for a combined $60,000 reaches a whopping $18,000. About 70 percent of this penalty, or over $12,000 per year, is due to CCAP. This figure doesn’t include Medicaid and Obamacare subsidies, which also include marriage penalties.*
The High Cost of Child Care in ‘Expansion’ States
That brings us to the final warning. In Minnesota, non-home-based child care for one infant costs on average of $1,300 per month. But in Texas, the monthly cost for an infant is less than $800, and in Georgia, under $650.
A significant reason for Minnesota’s child care cost is the state’s increased subsidization of the program. As seen in higher education, increased subsidization often results in higher costs. But subsidization also goes hand in hand with increased government regulation, as the government tries different methods of quality control to keep track of all the extra dollars it is spending.
Minnesota child care providers are drowning in regulation, compared to other states. That doesn’t mean every state that adds taxpayer funds to CCAP will have Minnesota’s mandated caretaker-to-infant ratios, but it does mean that once more money is added, the child-care industry and state bureaucracy will ask for stricter regulation, which will impose heavy fixed costs on smaller players and upstarts.
What to Do
Policymakers must tread carefully before adding money to the program. Ultimately, if welfare programs are to exist with minimized marriage penalties, policymakers need to do for welfare what they have already done in the tax code — that is, account for the fact that a married family will have two adults who both have earning power. This can be achieved by raising CCAP’s eligibility threshold for working-class married couples and gradually phasing out the program to soften its disincentive to marry or earn more.
State policymakers should use state funds to make CCAP fairer to married couples, giving one spouse the option to work only as much as the family sees fit. They should also change the way the program counts incomes toward eligibility to include those of any other adults in the house. Then, on paper at least, the program will no longer be biased against dads living with their children.
At the federal level, the Trump administration’s Department of Health and Human Services should issue a waiver, allowing states to experiment with reducing marriage penalties in CCAP, and even allow states to use federal dollars to achieve reform. Ideally, Congress would eventually act to specifically tie money to state grants when states pursue reform.
*The author has further research on this topic being released with the Archbridge Institute. Any who are interested should contact the author about the assumptions and methodology behind these numbers.