U.S. child care system is failing families, says Treasury

The Treasury Department has determined that the country’s child care system is “unworkable,” saying it is plagued by market failures that put quality care beyond the reach of many families.

In a report to be released on Wednesday, the Treasury details the difficulties many parents face in affording childcare, especially as bills pile up before their peak earning years.

At the same time, the Treasury found that many workers in the industry are paid low wages, experience high turnover and face discrimination.

Treasury advocates for federal government support for paid family leave, universal preschool education, and significant tax credits for parents and dependents as Democrats in Congress work to draft an expense bill social services that could total $ 3.5 trillion.

Treasury Secretary Janet Yellen and Vice President Kamala Harris will highlight these initiatives during a joint address Wednesday afternoon at the department.

Individual families should not take sole responsibility for funding quality care that benefits the economy more broadly, the Treasury argues in the report, adding that the system fails to “adequately serve large numbers of families.”

“This is no accident – sound economics explains why relying on private money to provide child care services is doomed,” the report said.

“Having a well-functioning child care industry is good for working families. It’s good for children. I would also like to stress that it’s good for the rest of us,” Catherine said. Wolfram, Acting Assistant Secretary of the Treasury for Economic Policy. “This is essential for a well-functioning economy.”

These programs come with hefty price tags. House Democrats estimate that two pillars of the agenda – universal preschool grants and child care for low-income families – would cost $ 450 billion. A national paid vacation program could require about $ 500 billion more.

Democrats are also proposing a permanent extension of the dependent tax credit, worth nearly $ 100 billion. The most important item is the extension of the improved child tax credit until 2025. The Joint Committee on Taxation predicted it would cost $ 550 billion over a decade – and many Democrats pledge not to. never let it expire.

“This money has enabled people to keep a roof over their heads, put food on the table and pay for the diapers, medicine and school supplies their children need,” the president said. from the House Ways and Means Committee, Richard Neal of Massachusetts. said Tuesday as his committee debated the bill.

The scale and cost of the programs have attracted attacks from Republicans, who accuse Democrats of trying to insert more government control and influence into the lives of Americans from birth.

“We need to focus on ensuring that hard-working taxpayers can find the best care for their children rather than blindly throwing money at the problem and calling it a solution,” GOP Rep. Virginia Foxx of North Carolina, the prominent member of House Education and Labor, said during debate on the bill.

The Treasury report found that the average family with a child under 5 must spend 13% of their income on care, which is unaffordable for many families. This inability to pay is what economists call a “liquidity constraint”: parents cannot spend more on child care than they earn at work, and they cannot borrow against future income to cover. expenses.

At the same time, leaving the labor market comes with its own penalties. The report cites a study by Harvard economists Claudia Goldin and Larry Katz, which found that an 18-month break from work was linked to a 41% drop in earnings for women with an MBA.

Despite this, the report shows that women’s participation in the labor market has declined over the past 20 years. Other advanced economies like the United Kingdom, France and Canada now have higher participation rates than the United States.

Part of the problem lies in the fragmented child care industry itself, according to the report. He cites research showing that most for-profit providers in the $ 60 billion industry have margins below 1%. The average salary for a child care worker is $ 24,230, so more than 15% of them live below the poverty line in 41 states.

According to recent surveys, the child care provisions in the Democrats’ spending program are widely popular. Almost three-quarters of registered voters support paid family leave, according to a Morning Consult / Politico poll last month. A separate survey of Data for Progress likely voters found that 60% approve of Universal Pre-K, 41% of which are Republicans.

“In this time of critical negotiations, there are compelling economic arguments to be made that it is in the best interest to reduce costs for working families,” said Rohini Kosoglu, domestic policy adviser to the vice president. .

On Wednesday, House committees will finish debating the proposals and then compile them into a single bill. Senate Democrats will also want a chance to weigh in, and there is still no consensus on the size or scope of the final package.

But leading senators on Tuesday pledged to ensure that child care arrangements are not left behind.

“We are leaving our workers in this country in deep trouble, and we are choking our economy,” said Senator Patty Murray, D-Wash. “And this is unacceptable.”

– CNBC’s Karen James Sloan contributed to this article.