« Books: The Edifice Complex | Main | Air Force Base Redevelopment »
June 28, 2005
Report: Tax Subsidies Help Low-Income Families Pay for Childcare
The Urban Insitute and the Brookings Insitution together as the Urban-Brookings Tax Policy Center researched possible reforms to the Child and Dependend Care Tax Credit (CDCTC), a federal income tax credit of up to 35% of child care costs. The program is neither refundable, nor indexed to inflation. It also does not truly aid low income families who may have no tax liability or who only receive a lower credit rate of 20%. As alternate examples, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are either refundable or partially refundable and increase with family size.
The first section of the paper summarizes the tax treatment of child care under current law. The second section evaluates how child care should be taxed in an ideal tax system. The next section evaluates the effectiveness of current child care subsidies measured against those criteria, and discusses the effectiveness of recent expansions to the CDCTC. The fourth section examines options to reform the credit, while a fifth section examines expansions to the CTC and EITC as alternative options. The final section presents conclusions.
Tax Subsidies to Help Low-Income Families Pay for Childcare