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Journal Issue: Financing Child Care Volume 6 Number 2 Summer/Fall 1996

Three Commentaries on the Proposals
Lenny M. Goldberg Thomas W. Schulz Michele Piel

Commentary 1

Lenny Goldberg

One of the obstacles to examining academic proposals for major policy change is the tendency to evaluate them in terms of the current political climate. There is certainly a large discontinuity between the politics of the 1990s and the proposals put forth in the two articles by James Walker and by Edward Zigler and Matia Finn-Stevenson. Both articles call for significant, new, and expensive public interventions at a time when the political system is retrenching toward spending far less on social programs, particularly at the federal level. But the politics of the day will change again. The appropriate evaluation of these policy proposals is the extent to which they can be turned into strategy, that is, translated into achievable goals around which advocacy is possible and effective. And, as always, the key question with such proposals involves a realistic approach to financing: Assuming the benefits of these policy approaches, how can they be financed?

Both proposals under review run counter to current political ideology. Zigler and Finn-Stevenson call for a child care system institutionally based in the public school system and extended systematically, with standards and accountability. They propose this system at a time when the prevailing ideology is one of the market and personal responsibility rather than government intervention, and of devolution to the states rather than new federal programs.1

Perhaps more in tune with this prevailing market ideology, Walker brings an economist's perspective to child care and analyzes the impact on the child care market of changing the financing streams. But Walker's article calls for significant financial payments to support children of poor families at a time when the political ethos appears to be an abdication of public responsibility for the poor. He also calls for a social security-based approach to financing child rearing, particularly in the infant years, at a time when the viability of the social security system is being called into question.2 Yet each of these proposals has a number of suggestive elements which can inform the debate about child care.

Slouching Toward Child Allowances

It has often been noted that the United States is one of the few Western countries without a family or child allowance system as part of comprehensive family policy.3 Most European countries and Canada have a system by which support payments for children are a universal entitlement to families. In the United States, discussions of child allowances enter the debate only in the context of alternatives to Aid to Families with Dependent Children (AFDC), such as that which would have been provided by the Family Assistance Plan proposed by Sen. Daniel Patrick Moynihan (D-NY) during the Nixon Administration.4

In his article, Walker proposes a child allowance as a way of providing more revenue to the child care market and of changing the nature of that market. It is likely that a true child allowance system will provide both less and more than he suggests: less insofar as the child care market will probably not change significantly as a result of a child allowance system; more insofar as a true child allowance system can "end welfare as we know it."

Unacknowledged in Walker's article—and in most discussions of welfare reform—is that the United States has been drifting toward child allowances in several ways during the past 20 years. The most obvious of these efforts is the Earned Income Tax Credit (EITC), begun in 1975 during the Ford administration, and expanded in 1986 under Reagan, in 1990 under Bush, and in 1993 under Clinton. The EITC is essentially a negative income tax which, in the 1993 tax law, became more focused on low-income wage earners with children. That is, the EITC provides low-income wage earners with tax refunds based on income and family size, paid at the end of the year, or, rarely, on a monthly basis. These payments are made even though the family has no tax liability. Republican proposals in 1995 to limit the EITC solely to families with children 5 would, if accepted, bring the program even closer to a child allowance program.

Other tax code provisions also constitute a backdoor child allowance system. These include the exemption for children in the tax code, which Walker estimates at $28 billion in tax benefits to families; a child care tax credit with benefits for families with enough tax liability to use it, at a cost of $2.8 billion per year; and head-of-household filing status, which provides tax benefits to single parents with children (not included in the Walker proposal).

Beyond the tax code, AFDC is another child allowance program. Its ongoing justification is that it provides a means of sustenance for children whose parents are not in the labor force. Supplemental Security Income (SSI) also provides some direct assistance to disabled children. And the social security system provides support to children of the deceased until they are 18.

A Better Approach: Tax-Based Child Allowances

The bipartisan federal proposal put forth in 1995 for a $500 per-child tax credit represents an extension of our backdoor child allowance system.5 While this proposal is controversial with regard to whether the credit should extend to the wealthy and how much it would cost, as tax policy, a per-child tax credit is a highly progressive policy which will eliminate many families from federal income tax liability. In fact, it points the way toward a simple and appropriate reform of the income tax that should be endorsed: The current exemption for children should be translated into an equal dollar credit. If it were, the amount available as a child credit would be worth perhaps another $500 per child. The problem with the current exemption is that the tax benefit that accrues to having a child is greater for those in a higher marginal tax bracket, while the cost of raising a child is more burdensome for those with more modest incomes. For those in the 36% tax bracket, for example, the value of the present exemption is $882; for those in the 28% bracket, the value is $686; for those with modest incomes in the 15% bracket, the amount is $387. Translating that same amount of lost tax revenue into a credit would value all children equally.

Another advantage of a per child tax credit is that it is progressive policy in another way: a flat dollar credit per child represents a higher percentage of the modest-income taxpayer's income than that of the wealthy taxpayer. Thus, $1,000 per child per family taxpayer is effectively a child allowance. In California, which has equal, and relatively high-level, personal and dependent credits, families of four earning less than about $25,000 annually pay no state personal income tax at all.

Integration with the Tax System

Walker notes that instituting a universal child allowance program would be prohibitively expensive, adding $135 billion per year to the federal budget when far less than that—he estimates $45 billion—may be necessary to address the needs of low-income families. Unfortunately, Walker wants to eliminate entirely the tax exemption for children as a means of paying for his child allowance program. In so doing, he is effectively calling for the elimination of the only child allowance (by another name) available to the middle class. Thus, the problem with his suggested program is far more than the political impracticability of eliminating tax benefits for middle-class families. The problem is conceptual: Walker states that because families have children voluntarily, those that can take care of them on their own should not be subsidized for the care of their children. An alternative view is more universal: middle-class, taxpaying families do struggle, with child care and with all sorts of other costs not borne by families without children. These are not just private costs: the sales tax, which is so heavily relied on by state and local tax systems, is particularly regressive with regard to family size, insofar as families with children are more often in debt to buy needed taxable consumer goods such as shoes, clothes, and furniture.6 The tax system should appropriately recognize the costs of raising a family, and child credits and child allowances provide that recognition.

Nevertheless, Walker's discussion of child allowances is limited by a failure to cover integration of any expanded or redefined child allowance program with the EITC, or with the broader tax system. The way to finance a child allowance program is not, as Walker suggests, to eliminate tax benefits for middle-class families. By integrating current AFDC expenditures (which Walker anticipates using to fund the child allowance program) with the EITC and other tax benefits, a comprehensive tax-based child allowance system would be able to provide significant assistance to the poorest families as well as others. Thus child allowances become not "welfare" but a universal tax-based benefit to families with children.

Parental Leave

With regard to the social security-based parental leave program, Walker's own examples suggest its weaknesses. The problem of parental leave is most acute for young parents who have more than one child. Under his plan, Walker notes that such parents will face a significant reduction in their retirement income. Similarly, for his system to work for a single parent, it requires that the parent work full time for years and delay childbearing—precisely what the most hard-pressed single parents often cannot or do not do. The parental leave approach is innovative, but it would appear to work best for those families who are not much in need of it, while jeopardizing the retirement income of those who need it most. The only possible argument for those results is if offering such incentives changes childbearing behavior—an unproved and unlikely event. Finally, the proposed parental leave program would put additional strain on a social security system which is already under fire for its inability to do what it is supposed to do: finance retirement income.

System or Marketplace?

A similar criticism can be extended to Zigler and Finn-Stevenson's proposal for a comprehensive, systematic, school-based child care system. Schools are already asked to do far more than they are capable of handling; should they take on these additional responsibilities? The authors handle this criticism with an empirical answer: Many schools are already handling child care responsibilities. Further, as funding streams permit, schools are serving as an appropriate family intervention point and are providing health and mental health services to families. But the question of universality remains; because some schools and school systems are capable of envisioning the School of the 21st Century, is it appropriate to replicate this approach everywhere on a systematic basis? Or, should we acknowledge the vast diversity of the child care market, and attempt to intervene only where the market fails?

Financing Ongoing Operations

The big unanswered question of the Zigler and Finn-Stevenson proposal lies with ongoing financing. The state grant program for start-up, phasing out over several years, is straightforward enough and a matter of political will: provide a financial incentive to get these programs going, and they will start. Far more problematic, however, is the ability to finance the ongoing costs, particularly in the context of existing public school financing problems. Nearly every state has grappled with thorny issues such as the appropriate mix of state and local dollars in financing K-12 education, the overreliance on the homeowner property tax, and intractable equalization problems resulting in widely differing funding levels across school districts. If the current educational finance tax base were expected to finance the child care system as well, these problems would only worsen.

With regard to equalization, for example, high-wealth districts may have a much easier time financing child care with a small property tax override than low-wealth districts, while at the same time they may have much more minimal child care needs. Should child care equalization formulas follow educational equalization formulas? That is, will child care dollars have to be reallocated among districts, using complicated formulas, so that access to services is roughly equivalent? At the state level, the battle for education dollars is intense; in many cases, education activists have seen dollars used for child care as a subtraction from other education dollars.7 Zigler and Finn-Stevenson suggest that lottery funds could be used to support the Schools of the 21st Century. However, in California, at least, lottery funds provide only about 3% of the schools' budget, despite public perception to the contrary.8

Another issue regarding ongoing costs relates to quality and affordability of child care. On the one hand, a school-based system can provide high-quality care for children and decent pay for child care workers. On the other hand, those very benefits may make child care services that much more expensive and therefore limit their affordability and availability. Putting child care in the schools does not solve the problem of low staff wages, which many have described (see the article by Helburn and Howes in this journal issue). It just shifts to local and state educational systems the burden of finding the dollars to solve the problem.

Public Schools and Existing Child Care Services

A final question that the School of the 21st Century proposal raises is whether in fact child care is best delivered by the public sector, or whether the diverse nonprofit, for-profit, employer-based, in-home, and public delivery system is what can be expected in a society with so much diversity in its child care needs. The authors refer to the school as the potential hub of service coordination. In fact, a key integrating role in child care systems is already played by resource and referral agencies (R&Rs), nonprofits that assist parents with child care placements, outreach and education, quality assurance, child advocacy, and, in some cases, also administer child care subsidies to help low-income parents purchase child care. (See Appendix A in this journal issue.) The diverse roles of R&Rs reflect their flexibility, their combination of public and private dollars, and their nonbureaucratic, community-serving approach. These qualities will not likely come from the schools, except perhaps in exceptional circumstances. They are even less likely to occur in large inner-city school districts, where schools struggle to deliver educational services, let alone child care. And it is in those districts where the needs are greatest.

Perhaps a better starting point for the schools to demonstrate their child care abilities is in the provision of before- and after-school care for younger children. Working parents, whose job sites may be far removed from their children, face daily burdens in coordinating their work schedules with their children's school schedules. Before- and after-school care can often use school classrooms that are otherwise empty, and schools that want to provide child care might begin with before- and after-school care. An incremental approach would suggest that it is more feasible to expect local districts to expand before- and after-school care than it is to expect them to make a significant new commitment to full-day early childhood education.

In short, the demands for an "institutionalized" and "comprehensive" public system place too much pressure on school finance and public school bureaucracies. Undoubtedly, the schools should be encouraged to play a more substantial role in serving children and families, as they recently have been with regard to the delivery of other social services.9 But attempting to force a system as diverse as child care into one approach is bound to fail. A better strategy is to identify the problems and the strengths in the existing system, and to build on those strengths.

Lenny M. Goldberg, M.A., is executive director of the California Tax Reform Association and president of Lenny Goldberg and Associates, a consulting and advocacy firm in Sacramento, CA.

End Notes


  1. Goldberg, L. Come the devolution. The American Prospect (Winter 1996) 24:66–71.
  2. Petersen, P.G. Will America grow up before it grows old? Atlantic Monthly (May 1996) 277,5:55–86.
  3. Kamerman, S. Child care and family benefits: Policies in six industrialized countries. Monthly Labor Review (November 1980) 103,11:23–28.
  4. For another child allowance proposal, see National Commission on Children. Beyond rhetoric: A new American agenda for children and families. Final report of the National Commission on Children. Washington, DC: National Commission on Children, 1991.
  5. HR2491, the Seven-Year Balanced Budget Reconciliation Act of 1995.
  6. Citizens for Tax Justice and the Institute for Taxation and Economic Policy. A far cry from fair. Washington, DC, 1991.
  7. California Teachers Association v. Huff et al. 1513 (1992), on the question of whether child care was included in California's funding formula for K-12 education.
  8. California Department of Education. Personal communication with Jim Wilson, director, fiscal policy, May 1996.
  9. Larson, C.S., ed. School-linked services. The Future of Children (Spring 1992) 2,1:1–144.