Minnesota’s Economic News — W/E 5/13/22
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Lack of high-quality affordable childcare is one of the biggest issues facing Minnesotans and the country as a whole. Parents in Minnesota pay some of the country’s highest costs for licensed care, while facing massive shortages. Additionally, our economy loses billions in economic activity as parents are kept out of the workforce due to lack of childcare, and businesses lose productivity due to lack of workers. Unfortunately, Biden’s childcare plan in his Build Back Better bill will only make things worse.
Sure, it might appear noble to want to help parents access childcare. The Build Back Better plan does that by offering universal preschool for all 3- and 4-year-olds and providing subsidies to help parents pay for childcare. For parents earning under 75 percent of their state’s Annual Median Household income (AMI), the plan might actually help, since subsidies for that income group covers the total cost of care.
The problem with the structure of the program, however, is that those earning slightly over AMI –– even just 1% over –– will be eligible for zero full subsidies while the program is in its rolling out phase (first three years). But even after full implementation, families earning 75% to 250% of AMI will be required a copay capped at 2 to 7 percent depending on the level of income.
The plan does this while requiring providers to pay childcare workers a living wage –– whatever that means –– or “equivalent to wages for elementary school teachers with similar credentials and experience in the state,” which will be adjusted for cost of living. This will raise costs significantly.
Some context: Childcare workers earn, on average, $25,000 a year according to the Bureau of Labor Statistics. Elementary school teachers, on the other hand, earn more than $60,000, meaning that childcare workers will get raises of more than 150%.
And for families with incomes between 150% and 250% of AMI –– who are not eligible for any subsidy between 2022 and 2024 –– costs will rise by thousands. According to some estimates, costs might rise by as much as $13,000 in high-cost states like Minnesota.
So how is the bill anti-marriage? It’s all about the structure. As Casey Mulligan explains in a Wall Street Journal article, since households with earnings under 75 percent of AMI will have their costs fully paid for,
A single mother earning 75% of the median household income in her state would pay nothing for child care, regardless of how much the child’s father earned. But the father’s income counts if he is legally part of the family. A husband and wife who each earned about 75% of the median income would have to pay thousands for the same daycare. In 2022-24, the married couple would pay full price, which would likely exceed $15,000 a child a year—$30,000 for two children under 5.
This in itself presents a huge marriage penalty, which “would encourage even middle-income people to think seriously about single parenthood,” and for good reason. Additionally, as described in the above scenario, for a dual household in which each parent earns 75% of AMI, the only way to afford childcare is for one parent to quit work and stay at home instead.
So while Democrats tout the plan as a way to help women enter and stay in the labor force, its structure does just the opposite for middle-class families, especially in its first three years.
Certainly, childcare is a huge concern for parents and the economy, especially coming out of COVID-19. The Build Back Better plan, however, solves neither shortage nor cost. In fact, it will raise costs for many and discourage work, pushing more people –– likely women –– out of the workforce. This is the complete opposite of its intended effect.
For its cost alone, the policy should be a non-starter. But worse yet, if passed, it will prove to be anti-marriage and anti-work.