ELLIOT: The devious child care tax credit

A line item in Gov. Roy Cooper’s budget proposal spends about $52 million on a restored Child and Dependent Care Tax Credit, a feature that was eliminated in North Carolina as part of a 2013 tax reform package. The $52 million figure amounts to almost 10 percent of the projected budget surplus from North Carolina’s current fiscal year, which will end June 30.
This sounds wonderful, doesn’t it? Voters who elected the Republican majorities who amassed the budget surplus will see a right good return on their vote. Well, not all voters. But working families — and what could be wrong with helping them out? Well, not all working families. Just the ones who pay other people to take care of their children. Well, not all families who pay for child care. Just the ones who pay a “registered daycare provider” to watch their kids.
And there’s the rub.
Conservatives have long recognized, and tried to correct, the anti-family aspects of state and federal tax codes. While politically attractive, the child care tax credit is one of the most persistent and devious examples of the tax code’s unnecessary and destructive descent into social engineering.
Devious, I say, because it is doubtful that most who support the tax advantage for families that use commercial child care are doing so because they want to make familial choices for their constituents. Making its way into the federal tax code in 1976, the credit was initially a reaction to the increase in two-earner households that resulted from two forces: societal changes that led to more women in the workforce, and the increased tax burden to middle-class families of Great Society entitlement spending.
As always, we should look at a policy based on its effects, not its intentions. And for the child care credit, it’s worse than making parenting choices for families — although that would be bad enough. As a tax reform proposal of the Institute for Policy Innovation noted in 2002, “families who provide home care subsidize through their taxes married or unmarried mothers who work and do not provide family care for their children.”
From a policy perspective, the most frustrating thing about commercial child care favoritism is that there is a neutral way to deal with the situation, one that leaves the choice to the family. A simple expansion of the per-child tax credit would bestow tax fairness on all families, scaled to family size, without favoring commercial child rearing over parental care.
This would leave special situations, such as a spouse who is disabled, a child with special needs, and perhaps other, uncommon situations. Certainly, these situations might call for specialized care that is better performed by professionals than by a parent. Thus, a tax credit for dependent care is likely still warranted, but narrowing the scope of the credit to these extraordinary circumstances would greatly restrict the cost to the state.
Republicans in the General Assembly would be smart to take the same amount from the surplus, $52,500,000, and propose an increase in the per-child tax credit paired with a narrowly tailored adult dependent care and special-needs child care credit.
It would cost the same, but families would be free to decide what is right for them and their situation, rather than having to contend with tax policy decisions from Raleigh.
Drew Elliot is a member of the North State Journal’s editorial board, separate from the news staff. Unlike other newspapers, the North State Journal does not publish unsigned editorials; the author or authors of every editorial, letter, op-ed, and column is prominently displayed. To submit a letter or op-ed, see our submission guidelines. Image credit: Kids’ Work Chicago Daycare.