Systematic Thinking About Subsidies for Child Care (Part 3 of 3): Part Three: Application of Principles

Systematic Thinking About Subsidies for Child Care (Part 3 of 3)Part Three: Application of PrinciplesC. Eugene Steuerle"Economic Perspective" column reprinted withpermission.Copyright 1998 TAX ANALYSTSThe nonpartisan Urban Institute publishes studies, reports,and books on timely topics worthy of public consideration.The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees,or its funders.In trying to design child care policy, a variety of principles can be applied, even though they sometimes comeinto conflict. The family is necessarily the first caretaker, but those receiving welfare and other assistance areexpected to work and give something back to society. There should be equal justice under the law, butexperimentation and diversity are still prized. The law should be neutral with respect to child care providedinside and outside the home, but applying progressivity to many separate welfare and tax provisions hasremoved some of that neutrality. Finally, the tax system can be an appropriate vehicle to deal with child care,but only under two conditions: it should be the most efficient delivery mechanism, and, if a subsidy isprovided beyond a reasonable measure of the tax base, the cost should be recognized as a direct outlay.While these principles and standards do not give us unequivocal guidance with respect to child care policy,they do set boundaries around what is reasonable. However amended, some set of guidelines should be usedto determine what to do with the many child care proposals that will bounce around Capitol Hill this year.Principles and standards serve as a counterweight to the political tendency to try to do a little bit ofeverything—to worry more about whether programs sound attractive than whether they work. To demonstratethe potential effectiveness of these standards, I will apply them below to some of the controversial issuessurrounding child care policy.Welfare and Work. Nothing demonstrates the ambivalence of national child care policy more than itsapplication to welfare. Recent welfare reform legislation abandoned the notion that single parents needinghelp were the best care givers for their children, and, that, therefore, they would not be required to work ifthey received assistance. An expanding economy and various state and federal reform efforts have succeededin reducing the number of welfare recipients. Still, many remain, and a surplus of federal and state funds hasincreased, rather than decreased, the average amount of assistance for each remaining recipient. Becausefew policymakers want to provide additional welfare assistance in the form of money, much has gone intowork support efforts, such as child care, education, transportation, or assistance from social workers.President Clinton's recent proposal to expand child care grants to states is only the latest of several efforts toexpand noncash assistance in the last couple of years.While child care assistance may work for one recipient, however, it is provided very unequally. A person hasto be in the right place at the right time to have access to limited child care funds. Moreover, equally poorpeople who never get into the welfare system generally are not eligible.The goal of recent welfare reform is to create work opportunity for people who may have few skills. Theproblem with many child credits and allowances is that they subsidize child care outside the home even whenit might be provided much more efficiently by grandparents, other relatives, cooperative arrangements, orneighbors. A better alternative would be to try to determine what overall level of help is going to be providedon condition of work, but then retain flexibility as to what forms that help might take. For example, it may bemuch more efficient and fair to provide additional transportation expenses to someone who might find otheradult sources of care with nearby friends or relatives. Another recipient may need additional educationalsupport rather than extra child care support. I have applied the term, "structured choice" to this type ofarrangement—structuring the goods and services that can be purchased with assistance, but allowing socialworkers or recipients some flexibility and choice to negotiate the most efficient among the limited options.Progressivity. It is often asserted that a credit is more progressive than a deduction or exclusion. Theargument is not always true. If the tax rate structure is adjustable, the tax/transfer system can be made asprogressive as wanted without introducing progressivity into every type of credit or deduction. Another way ofsaying this is that the rate structure is the primary means of achieving progressivity and should be separatedDocument date: February 09, 1998Released online: February 09, 1998 from the issue of the appropriate tax base. For example, in the design of tax reform in the mid-1980s,Treasury suggested that a child care deduction replace the child care credit