Childcare Entitlement Will Send Federal Costs Skyrocketing
President Joe Biden and the Democratic leadership in the House of Representatives are struggling to gain support for their $3.5 trillion reconciliation package, with moderates saying it is too costly. The new childcare entitlement is a perfect example of its largess. The Democrats want the federal government to cover childcare expenses for rich and poor families alike, funded through higher taxes and borrowed money, while driving up childcare costs through wage mandates and new regulations on childcare providers at the same time. Not only is the childcare entitlement a recipe for skyrocketing federal costs, it will magnify current problems by pushing out small, family providers through increased requirements, and reduce family choices in the process.
Childcare should be one area where Republicans and Democrats agree, especially since surveys show the vast majority of Americans want the government to help families with these expenses. After all, high-quality childcare can have tremendous benefits for children, especially those from low-income backgrounds, and lowering out-of-pocket costs through government assistance frees up family income for other things. Recognizing this reality, Congress and President Trump had already passed additional childcare funding in 2018 and 2020.
Today the Democrats’ plan goes well beyond the simple goal of making childcare more affordable for working families. What is proposed is a new entitlement program, where every child in the US would have access to heavily regulated childcare, paid for by government-provided “certificates” with capped copayments at no more than 7 percent of family income. In high-cost markets like New York City, families earning $200,000 per year with one young child could receive government subsidies of $7,000 or more.
The Committee for a Responsible Federal Budget estimates that the 7 percent cap on childcare costs alone would cost roughly $250 billion over 10 years, and that was before the House of Representatives’ markup process eliminated the income eligibility criteria from the original budget framework altogether. However, even $250 billion is vastly underestimated. It is impossible to know the actual costs of this entitlement program, let alone predict how expenditures will increase over time. And the federal government will bear the responsibility for almost all these new costs.
The Democrats’ childcare plan drives up childcare costs for all by mandating that childcare businesses pay their workers a “living wage,” and by expecting providers to meet “quality standards” to receive the highest government rates. These standards are equivalent to the ones listed in the 127 pages Head Start program specifications. They cover everything, including the requirements to have parent councils, the appropriate staff-to-child ratios, and specifics on appropriate nap, snack, and personal care practices.
Large day care centers will likely have no trouble meeting the new wage mandates and quality standards. But what about small, family childcare providers? The childcare market had already been shedding family providers for years, losing almost half the number of providers from 2005 to 2019, according to government statistics. While the total number of available childcare slots has remained the same as large daycare centers have picked up the slack, higher-cost daycare slots have increased in large urban and suburban markets, while less costly and more flexible care in rural areas, for infants, and for those with irregular work schedules have disappeared. The Democrats’ plans for new wage mandates, reporting requirements for providers, and regulations requiring high-quality childcare will only make this problem worse. The result will be reduced flexibility and less access to childcare for many working families.
The Democrats’ new childcare entitlement program puts taxpayers on the hook for providing childcare for all families in the US, regardless of income, while also asking them to absorb new costs associated with mandates by the federal government: higher wages, additional and more frequent reporting requirements, and strict regulations on how childcare businesses can operate. The Democrats’ plan drives up the costs of childcare and then taxes and borrows to pay for it. This is the essence of an entitlement mentality, and the perfect formula for an ever-increasing US welfare state. There is an alternative. The Democrats should replace their childcare entitlement program with some common-sense reforms with cost controls that have received bipartisan support in the past, such as increasing the childcare tax credit and adding funding for low-income subsidy programs.
Angela Rachidi Is a Senior Fellow and Rowe Scholar at the American Enterprise Institute. She is a former Deputy Commissioner of New York City’s Department of Social Services where she oversaw the agency’s policy research and program evaluation efforts.