The nonpartisan Tax Policy Center has run the numbers on Trump's childcare credit proposals and concluded that it is a massive gift to the richest American households, with little-to-no benefit for the poorest Americans who struggle most with childcare costs.
The headline finding is this: 70% of the benefits of the program will go to households earning $100k and up, with 25% going to households earning $250,000 and up. The median household income in the USA in 2015 was $56,516, according to Federal Reserve figures.
Trump's childcare benefit is delivered in the form of a tax credit, so the majority of the benefit goes to households earning enough to pay taxes. For families with income below $40,000, the credit will deliver a paltry after-tax annual benefit of $20. The top 1% of US earners will get an average benefit of $1.1M.
The Trump plan will cost the Treasury $115 billion over ten years.
Families with lower incomes do not benefit as much because they do not benefit from the
child care deduction. The credit is worth much less per dollar of child care expenses than the
deduction for higher-income filers who face higher marginal tax rates.
In addition, lower-income families tend to spend less on child care than families with
higher incomes for the simple reason that lower-income families cannot afford expensive care.
Lower-income families rely more heavily on informal child care arrangements that include
unpaid (and often less reliable) care provided by friends or family instead of more expensive, and
often higher-quality, center-based care or family child care homes (Chaudry et al. 2011).
Moreover, higher-income families are more likely to have additional expenses for private school
tuition or extracurricular enrichment activities such as music lessons (Duncan and Murnane
2014), which are also eligible for child care subsidies under the president's proposals. Because
the proposals are worth so little for lower-income families, they would not significantly alter the
type of care these parents can afford. Thus, the president's proposals would not meaningfully
change lower-income families' ability to purchase higher-quality care.
A further factor that contributes to the proposal delivering smaller benefits to low- and
middle-income families is that families with stay-at-home parents can only claim the deduction
and not the credit. Partly for this reason, low- and middle-income families are much less likely to
receive any benefits from the proposals than higher-income families. Over 25 percent of families
with income between $75,000 and $500,000 would qualify for some benefit under the
proposals, but less than 10 percent of families earning between $10,000 and $40,000 would
benefit (figure 2; table A1). In addition, more higher-income families receive tax benefits than
actually pay for child care (at least until the income limits are reached) because higher-income
households can claim the tax deduction for stay-at-home parents. The inverse is true for lower income
families because they cannot claim a corresponding credit for stay-at-home parents.
WHO BENEFITS FROM PRESIDENT TRUMP'S
CHILD CARE PROPOSALS? [Lily L. Batchelder, Elaine Maag, Chye-Ching Huang, and Emily Horton/Tax Policy Center]
Trump's child care plan is gift to the rich, report says