Now that President Joe Biden has signed the $1.9 trillion American Rescue Plan Act, many Americans are checking their bank accounts, eagerly awaiting their $1,400 stimulus checks.
Although it will take a little longer to arrive, an extra boost is coming for parents of young children. Thanks to temporary changes to the Child Tax Credit (CTC), eligible families will begin receiving a de facto child allowance in August, and when it's time to file taxes next year, they'll be able to claim the rest of the expanded CTC. The stimulus bill also increased the Child and Dependent Care Tax Credit, which means working parents will be able to deduct a larger proportion of their child care costs.
On the whole, this is good news. American families are struggling, and the pandemic has accelerated the deeply troubling freefall in fertility rates. Many couples are putting off having children in the hopes that their financial situations will stabilize, and this delay seems likely to increase the already large gap between the number of children Americans say they would like to have and the number they actually have. Putting more money in parents' pockets could create the cushion some parents need to have the children that they desire. More immediately, the payments are projected to cut the 2021 poverty rate for children in half.
But here's the bad news. The plan incentivizes the choice to have both parents work outside the home, and penalizes families in which one parent stays home to care for children. That's a mistake. Rather than pushing both parents into the workforce and kids into daycare, government support for families should empower parents to choose the arrangement that's right for them—even if it means that some parents choose to forgo paid employment in order to care for their children.
So, what are the details? Previously, parents could claim a $2,000 tax credit for each child aged 16 and under. For 2021, that credit has been increased to $3,000 for children ages 6-17 and $3,600 for children under 6. The credit is now fully refundable even for the lowest-income parents, who owe little or nothing in taxes. Perhaps more importantly, rather than having to wait until they file their taxes, parents will now receive the first 50 percent of their credit in advance.
This part of the American Rescue Act is very similar to the Family Security Act recently proposed by Senator Mitt Romney (R-UT), but with a few key differences. First, the American Rescue Plan Act offers a smaller cash payout; Romney's plan would give parents of young children $4,200 per year instead of $3,600. Under Romney's plan, that money would be considered a child allowance instead of a tax credit, which makes it much simpler to administer. Rather than disbursing half of the benefit through the Internal Revenue Service, Romney's plan would pay out the full benefit in advance, via monthly payments administered by the Social Security Administration. The Romney proposal is also budget neutral; it would pay for the child allowance by eliminating or consolidating other government programs and tax breaks—including the child care tax credit.
By contrast, the American Rescue Plan nearly quadruples the tax credit for parents who pay for child care, increasing it from a maximum of $1,050 for one child and $2,100 for two or more children to $4,000 and $8,000. In addition, for those lucky parents with a Flexible Spending Account or other employer-provided dependent care assistance, the act more than doubles the amount that may be excluded from their gross income from $5,000 to $10,500.
Providing more financial support for families is a step forward. It sends a message that we as a nation value the irreplaceable role that parents play in their children's lives, and the role that those children will have in building our future. But that support shouldn't be tied to the use of paid child care providers. Having a stay-at-home mom shouldn't be a privilege reserved for the wealthy.
Increasing tax credits for child care isn't what lower-income parents want or need. New polling data clearly show that the majority of low- and middle-income families would prefer to have one parent stay home to raise the kids, and overwhelmingly cite financial constraints as the reason they have fewer kids than they want. There's a split between college grads and non-college grads here too. Parents with more education (and perhaps more lucrative, fulfilling careers) say they'd prefer to get government-funded paid family leave and child care assistance. Parents without a four-year degree, on the other hand, would much rather have direct cash payments.
Why are we designing our government programs to give the most help to higher-educated families with two parents in the workforce? Tying benefits to the use of paid child care changes the calculus for individual families. It encourages choices that push up the cost of living for all families and make it harder for families to survive on one income.
Don't just take it from me. Consider this passage by Senator Elizabeth Warren.
Day-care subsidies offer no help for families with a stay-at-home mother. In fact, such subsidies would make financial life more difficult for these families, because they would create yet another comparative disadvantage for single-income families trying to compete in the marketplace. Every dollar spent to subsidize the price of day care frees up a dollar for the two-income family to spend in the bidding wars for housing, tuition, and everything else that families are competing for—widening the gap between single- and dual-income families. Any subsidy that benefits working parents without providing a similar benefit to single-income families pushes the stay-at-home mother and her family further down the economic ladder. In effect, subsidized day care would add one more indirect pressure on mothers to join the workplace.
Luckily, the tax provisions of the American Rescue Plan only last for one year. By that time, assuming the IRS does its job, parents will have been receiving CTC payments for six months. It's going to be hard to put that genie back into the bottle, as much as many Republican lawmakers would like to.
Instead of obsessing over whether some low-income moms might opt out of paid work while their kids are young, the GOP should follow Senator Romney's lead. It's time to give struggling families what they want and need: cash benefits, not subsidized child care.
Serena Sigillito is Editor of Public Discourse, the online journal of the Witherspoon Institute. As a Robert Novak Journalism Fellow at the Fund for American Studies, she is currently working on a project titled "Women's Work: How Modern Moms Find Fulfillment in Caregiving and Career Building." You can follow her work here.
The views expressed in this article are the writer's own.
