Family (Policy) Drama
As Democrats debate the price tag of four major policies, questions also arise about the incentives they create.
The Biden administration’s Build Back Better plan originally included four major family policies, but moderate Democratic Senator Joe Manchin won’t vote for the bill unless those policies are trimmed back to reduce the price tag. So Democrats are thinking about eliminating some policies, or aggressively means-testing them, or perhaps cutting off the funding earlier than planned—a budget gimmick premised on the idea that a future Congress will just extend the programs anyway. This weekend, Manchin reportedly laid out some “red lines” as to what these cuts should look like, though negotiations continue.
Spending more on families can be beneficial in some ways. Even many conservatives have urged a greater role for the government in making it more affordable to raise children. Yet the Democrats’ internal debate isn’t just about how much to spend. It’s also about the incentives that families should face as they make personal choices about work and child care. Each of the four major options has the potential to shape behavior in controversial ways.
First is extending the “child allowance”—currently in effect, but only for a year, through the American Rescue Plan—that gives parents $3,000 per child plus an extra $600 for kids younger than six and phases out at higher incomes. Second are massive child-care subsidies that would cap costs at 7 percent of middle-class families’ income and provide care for less cost (or even no cost) for poorer families. Third is universal preschool for three- and four-year-olds. And fourth: 12 weeks of paid family and medical leave, so that new parents can take three months off at government expense.
Extending the “child allowance” is, in one sense, the most neutral option. The government simply pays the allowance to all parents (until it phases out at higher incomes), without regard to whether the parents work or watch their own kids. Thus, the money is not conditioned on parents acting in a certain way that the government wants them to. Yet this in itself is a big departure from the pre-Covid status quo, in which the $2,000 child tax credit was limited to families with income- or payroll-tax liability to offset—thereby serving as a de facto requirement that at least one parent work in order to receive aid.
The Democrats’ credit, by contrast, is no-strings-attached cash to families, including those in which nobody works. And where some conservative proposals have paired such policies with cuts elsewhere in the safety net, the Democrats’ allowance does not. Some worry that this could recreate the welfare system as it existed before the 1996 reform, with some of the poorest families supporting themselves on a mix of benefits and off-the-books income rather than climbing the ladder of the official labor market. One recent study, predicting the effects of the child allowance based on results from earlier research, claims that the policy could “lead 1.5 million workers (constituting 2.6 percent of all working parents) to exit the labor force,” with most of this behavioral response coming from single-worker families. Manchin has reportedly insisted on a work requirement for the new credit.
Meantime, huge child-care subsidies and universal pre-K share a significant feature: under these policies, the government pays for someone to watch kids while parents work. Notably, these benefits don’t just require that someone in the household works. They are useful only to those who need child care—which is to say, they exclude couples where one parent works while the other watches the kids.
Economically, such subsidies discourage parents from staying home with their children to begin with, by destroying the financial savings that stay-at-home parenting normally brings. One of the natural consequences of staying home, after all, is that your kids no longer need daycare, an expensive service. To the extent the government picks up the daycare tab for working parents, stay-at-home parents pass up those subsidies rather than actually benefiting financially from the work they do.
Make no mistake: this is the government putting its finger on the scale, fundamentally altering the tradeoffs associated with the decision to stay home, even as many parents say in surveys that they want to stay home or to work only part-time. Many of the policies’ advocates essentially admit this, though they couch it in friendlier terms, with a dose of anti-sexism. They see themselves as “helping” or “enabling” women to work, thus furthering “gender equality” and improving moms’ “earning potential” (buzzwords courtesy of a recent New York Times piece).
Daycare and pre-K also have uncertain and oft-debated effects on kids. As Max Eden explained in a recent Manhattan Institute report, “Expanded child care likely benefits deeply disadvantaged students. For other students, these programs may have no impact, or have a negative effect on cognitive or noncognitive measures. . . . Studies suggest that many children exhibit higher levels of stress hormones—colloquially termed ‘toxic stress’—in child-care environments than they do at home, which could leave a lasting physical impact on their brain architecture.”
Expanding pre-K can greatly damage daycare. Many daycares operate by “cross-subsidizing” the care of younger kids with revenue from older kids. The youngest kids need the most care and the highest staffing ratios, and while most child-care centers do charge a bit less as children get older, this gradient is nowhere near steep enough to reflect fully the difference in costs. When the government yanks the oldest and most profitable kids into universal preschool, other child-care facilities have to charge much more for younger children, and some slots disappear entirely.
Last is the option of funding parental leave. This is probably the least drastic of the proposals, though even it favors some parents over others. If you don’t want to take that much leave—because you’re a workaholic, say, or you’re in a high-pressure job and can’t afford to lose ground, or your stay-at-home spouse has things covered—you miss out on funding available to people who stay on the path that the government has chosen: taking a specified amount of time off and then returning to work. (Incidentally, whether this type of benefit actually does keep moms from leaving the work force entirely is far from clear.)
Democrats are scrambling to cut the price tags of their family policies, but the debate isn’t just about how much to spend—it’s also about how government should shape the decisions that families make.
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