Child care is already a major expense for parents, and President Biden is pledging to cut its cost with his multibillion-dollar Build Back Better bill. Yet while some of those who receive government grants may see their costs reduced, millions of other working parents could see their child care costs double. The new program would act as an annual tax of $ 20,000 to $ 30,000 for middle-income families.
The latest draft of the bill proposes to reinvent child care with a trio of forces that drive up costs. First, it would remove much of the incentive to provide lower-cost care. Millions of families would see their child care costs capped by law, meaning they would pay as much in an expensive facility as they would in a cheaper facility.
Suppliers would quickly discover that lower prices are no longer really a competitive advantage. In addition, providers would be reimbursed additionally for what Congress calls “quality,” which is an understatement for having more staff per child. The history of rate regulation is that overcharge regimes lead to unnecessary waste and higher prices for consumers without improving quality.
Churches and other faith-based institutions have a natural advantage when it comes to childcare costs, as church facilities would otherwise go unused on weekdays, when the demand for childcare is greatest. Building back better would waste this advantage by funding capacity expansions only from non-religious competitors.
Second, providers would need additional staff to understand and comply with all of the new agency statutes, certifications and rules. Just as doctors complain about paperwork that consumes time that could be spent with patients, child care providers will waste time that they could spend with children.
Third, the bill imposes “living wage” rules on staff compensation. In one to study For the Committee to Unleash Prosperity, I estimate that these regulations alone would add 80% to child care costs.
By adding the inflated sticks provided by its first two boards, Build Back Better could increase costs by over 120%. For a family with a baby and a 4-year-old child, this would represent an additional annual expense of up to $ 27,000 if they are not eligible for the grants. By 2022, when the grant is only available to those who earn no more than their state’s median income, that would be half of families currently using child care. Even in 2024, when subsidies were more generous, more than a quarter of families using such daycares would pay more than double what they currently do.
President Obama’s Affordable Care Act had just two of these approaches: heavy regulation and premium caps for a subset of consumers from 2014. 102% between 2013 and 2018.
The same has happened in higher education: government aids, grants and loans have not reduced tuition fees but have dramatically increased them for millions of families. The best way to help working families is to lower their tax bills, which not only helps families who use daycare centers, but also those who provide the best care available, at home with mom or dad.
Mr Mulligan, professor of economics at the University of Chicago and senior researcher at the Committee to Unleash Prosperity, was chief economist at the White House Council of Economic Advisers, 2018-19.
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Appeared in the December 10, 2021 print edition under the title “Biden would make daycare even more expensive.”