Improving Early Childhood Development by Allowing Advanced Child Tax Credits
By Katharine B. Stevens | Matt Weidinger
REPORT
April 8, 2021
Key Points
Federal programs to help families balance the competing demands of work and raising their young children focus almost exclusively on subsidizing nonparental care. Yet, many families still lack access to high-quality childcare, while federal funding provides no help to parents who would prefer to care for their children at home.
We propose allowing parents to advance future child tax credits into the earliest years of their child’s life, strengthening their ability to choose how and by whom their children are cared for during the formative first years of development.
Because our proposal simply allows parents to shift the timing of an already-promised tax benefit, it would incur little additional long-term cost.
Executive Summary
A substantial body of research underscores that ensuring high-quality, developmentally supportive environments for young children—especially in the first years of life—is crucial to their individual futures and the nation’s future. Yet, millions of children today spend large portions of those foundational years in low-quality childcare that jeopardizes their healthy development.
Most federal funding designed to address this problem is focused on subsidizing nonparental, out-of-home childcare. But many lower- and middle-income families still lack access to high-quality childcare because they do not qualify for subsidies or because available subsidies are insufficient. At the same time, federal funding provides no help to parents who would prefer to care for their children at home but cannot financially do so. This report proposes allowing parents to advance future child tax credits into the earliest years of their child’s life, giving them greater choice in how to raise their young children.
Our proposal aims to help two groups of parents. The first is parents who choose or need to work outside the home but lack access to high-quality childcare. By providing families with earlier access to already-committed taxpayer resources, the proposal allows them to better obtain the nonparental care that serves the best interests of their young child’s development. The second group is parents who want to spend more time caring for their young children themselves, instead of placing them in nonparental, out-of-home care. For many children, their own home is the best early environment for supporting their healthy development. Increased parental care can yield important developmental benefits for children through more one-on-one nurturing interaction, increased stability, and more and longer breastfeeding, which is shown to reduce childhood illness and improve long-term health and cognitive development. Our proposal would also help reduce parental stress, increase family financial stability, reduce financial barriers to childbearing, and mitigate marriage penalties in other benefits.
We propose giving parents considerably greater flexibility in the timing of their claims for the existing federal child tax credit (CTC) to accomplish these ends. Under current policy (which was recently amended temporarily for 2021; see endnote 37), the CTC provides parents up to $2,000 per child per year for the first 17 years of a child’s life, totaling up to $34,000. Our proposal would give parents the option to pull up to $30,000 of those funds forward into as few as two years, providing up to an additional $15,000 per year to help parents better cope with the exceptionally high costs of caring for children in their first years of life.
The budgetary impact of this proposal is expected to be relatively small over the long term because it adds no new spending but rather simply permits a shift in the timing of an existing tax benefit. In the wake of unprecedented increases in federal budget deficits driven by the coronavirus crisis, our proposal may be more legislatively viable than creating a federal paid leave program or significantly expanding federal funding for nonparental childcare.
See Also
Blog ~ April 14, 2021
Op-Ed ~ February 1, 2018
Op-Ed ~ August 3, 2020