Biden Would Make Daycare Even More Expensive The Build Back Better bill would act like a $20,000 to $30,000 annual tax on middle-income families. By Casey Mulligan
Child care is already a major expense for parents, and President Biden pledges to reduce its cost with his multitrillion-dollar Build Back Better bill. Yet while some of those who receive government subsidies may see reduced costs, millions of other working parents could see their child-care costs double. The new program would act like a $20,000 to $30,000 annual tax on middle-income families.
The bill’s latest draft proposes to reinvent child care with a trifecta of cost-increasing forces. First, it would remove much of the incentive to offer lower-cost care. Millions of families would have their child-care expenses capped by statute, which means they’d pay the same at an expensive facility as at a cheaper one.
Providers would quickly discover that lower prices no longer are much of a competitive advantage. Moreover, the providers would be reimbursed extra for what Congress calls “quality,” which is a euphemism for having more staff per child. The history of rate regulation is that cost-plus schemes result in needless waste and higher prices for consumers without quality improvements.
Churches and other faith-based institutions have a natural cost advantage in child care because church facilities would otherwise sit unused on weekdays, when the demand for care is greatest. Build Back Better would squander this advantage by financing capacity expansions only at nonreligious competitors.
Second, providers would need extra staff to comprehend and comply with all the new statutes, certifications and agency rules. Just as physicians complain about paperwork eating up time that could be spent with patients, child-care providers will lose time they could be spending with kids.
Third, the bill imposes “living wage” regulations on staff pay. In a study for the Committee to Unleash Prosperity, I estimate these regulations alone would add 80% to child-care costs.
Adding in the bloated staffs delivered by its first two planks, Build Back Better could increase costs by more than 120%. For a family with an infant and a 4-year old, that would be an additional annual expense of up to $27,000 if they don’t qualify for subsidies. In 2022, when the subsidy is only available to those earning no more than their state’s median income, that would be half of families currently using child care. Even in 2024 when the subsidies would be more generous, more than a quarter of families using such child care would be paying more than double of what they do now.
President Obama’s Affordable Care Act featured only two of these approaches—heavy regulation and premium caps for a subset of consumers beginning in 2014. Although the law promised to save families an average of $2,500 annually on health insurance, in fact premiums on the individual market increased 102% between 2013 and 2018.
The same thing has happened in higher education: Government aid, grants and loans haven’t lowered tuition but substantially increased it for millions of families. The best way to help working families is to cut their tax bills, which helps not only families using child-care facilities but also those providing the best care available—at home with mom or dad.
Mr. Mulligan, a professor of economics at the University of Chicago and senior fellow with the Committee to Unleash Prosperity, served as chief economist at the White House Council of Economic Advisers, 2018-19.
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