Published on October 29, 2021
Watching the negotiations over the Biden administration’s reconciliation package has sometimes felt like watching someone step into one of those booths that blows money around—with so many dollar bills up for grabs, it’s hard to keep track of specifics.
The “Build Back Better” (BBB) framework released Oct. 28 by the White House offers a vision of what the final product may look like. Of the roughly $1.8 trillion in new programs, four components are specifically aimed at supporting families: the child tax credit (CTC), elder home care, expanded childcare subsidies, and universal pre-kindergarten. The BBB’s potential impact goes beyond the cost, however, as these new programs could have wide-ranging consequences, intended or not, on family life in America.
With their ambitions constrained by centrist Democrats, the Biden administration chose not to make these new provisions permanent. Instead, they are willing to take the gamble that these subsidies and programs become politically entrenched, so that future Congresses feel no option but to extend them. We all remember the difficulties Republicans had in replacing Obamacare after people had gotten habituated to it; they will need to come up with their own vision of supporting families to avoid falling into the same trap.
The debate over the extension of the expanded CTC has gotten the most attention (Personally, I favor Sen. Mitt Romney’s Family Security Act over the Biden administration version.) Among other things, the BBB plan would make the child tax credit, expanded in March’s American Rescue Plan, permanently refundable—that is, ensuring families with limited tax liability still receive the full value of the CTC going forward. It would also devote $150 billion to reducing the backlog facing Medicaid patients waiting for in-home care services, an expensive but defensible policy choice.
But it is the $400 billion for expanding childcare subsidies, and rolling out universal access to preschool, that could most dramatically reshape the landscape for parents of young children—perhaps in ways its authors don’t intend.
There’s no question that the childcare sector is plagued by what economists would consider market failures—parents have limited visibility into the true quality of care when they’re not around, many providers don’t post their prices online(making it difficult to comparison shop), and most families have a strong preference for a location near home or work, making their choice geographically constrained. These dynamics mean a simple prescription of deregulation won’t necessarily make the childcare market work better for families.
But many of the BBB plan’s provisions go beyond simply improving the functioning of the childcare marketplace, to distorting it and possibly derailing it. Most notably, the bill would cap the amount most families spend on child care for children age 5 and under at 7 percent of household income, decoupling their choices from the cost discipline of the market. (To be eligible, families would need to have an income below 250 percent of the state median income, which means a Massachusetts family making $250,000 would have any childcare expenses beyond $7,000 put on the federal tab.)
A 7 percent threshold on childcare expenditures would be a big-ticket spending item that explicitly subsidizes a model of family life in which all parents participate in the workforce. During the Great Society era, we chose to socialize the cost of medical care for the elderly because we thought it was an important reflection of what our society valued. Choosing to do the same thing for childcare would send an unmistakable message about the types of work-life arrangements our society finds valuable, and signal to parents who want their young child at home with a parent or relative that their choice is not worthy of the same level of social investment.
Instead of using targeted government funds to boost supply, the BBB approach is to subsidize demand and let government pick up the rest. If you’re heard of the Bennett hypothesis, which argues that federally backstopped student loans have helped drive college tuition higher, this approach will sound familiar. Providers would be able to set costs up to an amount determined by the state as being the quality-adjusted cost of care, including being required to pay wages equivalent to elementary school teachers with similar credentials. Firms will get paid more if they are ranked as having higher “quality,” which might be one thing if we knew it was linked to better outcomes for children. But researchers have found the relationship between measured facility quality and long-term impact on children is spotty at best.
The BBB plan does propose extending the expanded child and dependent care tax credit (CDCTC), which reimburses taxpayers for spending on childcare. But that in itself is a back-door way of benefiting providers, rather than parents: A 2018 paper estimated that more than half of every dollar reimbursed to parents through the CDCTC was captured by childcare firms in the form of higher prices. And to keep the budget number down, the entire plan is funded only through 2027, which could leave the childcare market in a state of precarious uncertainty toward the end of that window. (If firms get used to operating with state subsidies, and then the provisions expire, a true crisis could result.)
The expansion of universal preschool is in some ways more straightforward. The Biden administration proposes allowing states to tap into federal resources to make preschool available to 3- and 4-year-olds, covering 100 percent of the costs in the first three years before requiring a state contribution over the medium term.
States would have the option of participating in the program, likely leading to a red-blue divide in where the program is offered, though some traditionally Republican states like Oklahoma do already offer a type of universal preschool. (States will have to choose whether to participate in the new childcare entitlement as well; if they opt not to, the BBB plan gives the Department of Health and Human Services the authority to expand Head Start funding in that state instead.)
The legislative text spells out that these plans would be voluntary and “mixed-delivery,” the term of art for ensuring a variety of providers, rather than just offering them all through the existing K-12 system, though it will be up to each state to design a given plan. Meanwhile, the Biden administration has trumpeted this provision as “expanding public education from 12 to 14 years”—a mixed bag, perhaps, for those unconvinced the current dozen years of public schooling have sufficiently prepared America’s youth for the road ahead.
Like the childcare program, the plan plants seeds for potential skyrocketing costs (though in an ironic twist, that possibility may keep the overall numbers down if states decide to shy away from taking on a long-term obligation.) Under the package, states must provide preschool instructors a “living wage,” with wages equivalent to elementary school teachers with similar credentials, within the first three years of the program, and eventually require lead teachers to have a college degree. What artificially propping up wages for childcare and preschool workers could do to the labor market for other low-wage jobs hasn’t been fully studied, to my knowledge, but could have some strange effects in the long run.
In addition, the interaction of these two programs could exacerbate the child care crunch for middle- and upper-income families. Research has found that when New York City expanded its public pre-K program, private childcare slots for infants and toddlers fell, as they were no longer cross-subsidized by relatively-cheaper 3- and 4-year-olds. Childcare providers who choose not to participate in the state subsidy scheme will be forced to raise prices to compensate for losing the older kids to public programs, or close up shop.
There is a non-zero chance that these interventions cause the childcare market to go haywire, and poor implementation could lead to an Obamacare-like political backlash. But as the health care example shows, government programs, once begun, are very hard to unravel. Democrats in Congress are not in the mood to hear constructive ideas from Republicans on how to make the childcare market work better. So Republicans should begin preparing for a world in which rolling back the Build Back Better childcare provisions requires a fight, and lay the groundwork for their own ideas of how to improve the market for parents.
My own suggestion would be to recognize that the top two places parents tell pollsters they wish their young children could spend the bulk of the day are either at home with mom and dad or at a faith-based child care provider. A pluralistic approach to child care, one that expanded supply by strategically capacitating faith-based and community groups rather than piling up mandates and subsidies, could better meet parents’ preferences without breaking the bank. (In fact, the text strikes a blow against pluralism by specifically barring building or facilities “used primarily for sectarian instruction or religious worship” from being eligible for grants aimed at expansion or renovation.) Instead of the BBB layering on additional “quality” mandates and licensing requirements, the federal role should be to encourage states to strip away nonessential regulation to make it easier for more establishments to enter the market.
This may require a little more federal involvement than some conservatives are used to or are comfortable with. And given the Democrats’ slim House majority and tiebreaker-only grasp on the Senate, there’s still a chance the whole project goes off the rails before it makes it to the president’s desk.
But if the reconciliation bill passes, failing to prepare an alternative will run the risk of a repeat of the “repeal and replace” catastrophe with the Affordable Care Act. Republicans should begin preparing a coherent vision of family policy to counter the new suite of benefits introduced by the Biden administration —and a compelling argument for why their agenda would better meet what working-class parents are looking for better than simply firing up the money booth.
Patrick T. Brown (@PTBwrites) is a fellow with the Ethics and Public Policy Center, and a former senior staffer for Congress’ Joint Economic Committee.