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Challenging Categories: Childcare
4.1. BACKGROUND AND MOTIVATION
Among those who pay for childcare, out-of-pocket childcare costs as a percent of household budgets have increased more than any other budget element since the 1960s. According to Lino et al. (2017), childcare costs represent 16 percent of family budgets among families who pay for childcare, the third-largest component after housing (29%) and transportation (18%). Childcare costs represent an even larger share of the household budget for low-income families with preschool-aged children (U.S. Census Bureau, 2011; Mattingly and Wimer, 2017).
Moreover, the federal government spends a substantial amount on childcare subsidies, the value of which is not currently tracked in either the Official Poverty Measure or Supplemental Poverty Measure (SPM). In 2019, the two largest federal programs, the Child Care and Development Fund (CCDF) and Head Start, provided $20 billion in childcare support for low-income families (Congressional Budget Office, 2021). The impact of these important policies affecting resources to families with low incomes is not adequately captured in the current methodology, and that is a major motivation to improve this component of poverty measurement. Additionally, in recent years, the Child and Dependent Care Tax Credit—a nonrefundable tax credit that reduces federal income tax liability based on child- and dependent-care expenses incurred by taxpayers who work or are looking for work—provided about $4 billion in annual support for low- and middle-income families (Congressional Research Service, 2021). As detailed in Chapter 2, Child and Dependent Care Tax Credits are included in estimates of available resources in the current SPM.
The recommendations in this chapter are intended to contribute to a more complete and transparent accounting of childcare costs and resources, while recognizing that development of an approach for implementation as part of the proposed Principal Poverty Measure (PPM) will require a considerable amount of additional research.
4.2. CURRENT SUPPLEMENTAL POVERTY MEASURE TREATMENT—STRENGTHS AND WEAKNESSES
The SPM has a very simple approach to incorporating childcare costs: if both parents (or single parents1) work, the SPM deducts the amount paid for childcare from resources, as a work-related expense (capped at the amount
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1 Throughout this chapter, “parent” is used as shorthand for any person acting in a parental capacity. For example, in some cases, a child’s caregivers may be grandparents or other relatives.
of earnings of the lowest-paid parent).2 Amounts are estimated from the Current Population Survey Annual Social and Economic Supplement (CPS-ASEC), in which respondents are asked if they pay for childcare and, if so, how much they pay while the parents are working. The SPM, then, treats childcare costs the way it treats work-related expenses such as commuting costs.3
The current SPM approach is simple to implement using data available in the CPS-ASEC. However, the approach has several shortcomings if the goal is to comprehensively assess the impact of childcare needs and costs on a family’s wellbeing and/or to capture the impact of government spending in this domain. The current method makes overly simplistic assumptions about families’ childcare needs and costs. One simple-to-correct flaw is that parents who are not working are assumed to have no childcare costs, even if they are engaged in activities such as education and training. This assumption is inconsistent with childcare subsidy rules, which recognize education/training as an activity requiring childcare.4 Similarly, an employed parent is assumed to have no need for childcare, and therefore no childcare costs, if a nonemployed parent is in the home—even if that parent is unable to provide care due to disability, ill health, or some other limitation.
To address these problems, the panel recommends correcting the current approach by: (1) treating parents who are engaged in education or training the same way as parents who are employed; and (2) not assuming that a parent who is not working and is disabled is available to provide childcare while the other parent is working or engaged in education. This correction would be consistent with childcare subsidy rules that consider educational activities equivalent to work for the purposes of subsidy eligibility and would also more accurately reflect families’ childcare needs. The panel sees this as an issue that could be addressed in the near term and thus recommends it for immediate action.
RECOMMENDATION 4.1: In households with children under the age of 13 (or, in line with current childcare subsidy rules, up to age 18 if disabled), parents who are in education or training should be treated like parents who are employed, and a parent who is not working and is disabled should not be assumed to be available to provide childcare while the other parent is working or in education/training.
More consequentially, a large proportion of childcare is omitted from the current SPM because the SPM’s specification only addresses paid childcare used by employed parents. Uncompensated childcare provided by working parents (e.g., parents who work opposite schedules), friends, or family is unrecognized, as is care provided by parents who are not in the labor force. Childcare purchased by nonemployed parents is also omitted from the current measure. In all these scenarios, the current SPM treatment of childcare understates childcare needs and expenses and therefore overstates financial resources.
These omissions derive from a conceptual flaw: the current approach views childcare as a need only if parents are working in the labor market, and it takes childcare into account only if parents pay for it in the market. However, an alternative view—one that the panel endorses—is that all households with children have a need for childcare. Some parents meet that need by purchasing childcare in the market, some use fully or partially subsidized care, some rely on unpaid care provided by friends or family members, some provide care themselves, and of course many use a mix of modes or switch modes over time. Ideally, PPM thresholds in the future would include a childcare need for all households with children in a way that parallels the treatment of food, shelter, utilities, and (in the panel’s proposal) medical care. Specifically, a need for childcare should be included for all households with one or more children under the age of 13 (or with disabled children up to the age of 18). These age groups are selected in line with current childcare subsidy rules. Achieving this conceptual ideal, however, depends on whether the need can be conceptually well defined and feasibly measured.
Balancing the inclusion of a childcare need in the threshold, the PPM would ideally also account for childcare subsidies on the resource side. This would address the second shortcoming of the current measure—that childcare
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2 Childcare expenses are currently subtracted as reported (after capping).
3Equation 2.2 in Appendix 2A describes how these out-of-pocket costs are subtracted from resources available to a household.
4 For instance, under the Child Care Development Block Grant Act, states can use Child Care and Development Fund resources to offer childcare to low-income families so that parents can work or attend job training or educational programs.
assistance is not systematically accounted for in the resource estimate, and thus the effect of childcare policies is invisible. This is problematic since one of the primary purposes of the SPM/PPM is to gauge the effects of policies on poverty and, as discussed above, the federal government spends a substantial sum on childcare assistance. Additionally, once a valuation approach is agreed upon, the receipt of unpaid care would ideally also be valued as a resource (just as the rental value of a home owned free and clear would be included as a resource in the panel’s proposal).
4.3. AN IMPROVED APPROACH
Given the above-described shortcomings, an updated approach to account for childcare in the SPM is warranted. An updated approach, once developed, would improve the accuracy, consistency, and transparency of the updated poverty measure. Importantly, although an updated approach will require considerable additional research and development, the construct envisioned here is now more feasible than it would have been when the SPM was originally designed. The increased availability of state- and even county-level databases on childcare prices (some of which are discussed below) is a key reason for this greater feasibility. As outlined in Chapter 2 and stated in Recommendation 2.4, the panel proposes ultimately broadening the number of explicit basic needs categories beyond the current food, clothing, shelter, utilities, telephone, and internet (FCSUti) to include childcare (along with medical care).5
The panel recognizes that, in contrast to the proposed approach to medical care, full implementation of the PPM approach to childcare requires further research and possibly new data. For this reason, the panel believes it prudent to distinguish three stages of revision: (1) changes that should be made immediately to fix problems with the current SPM approach to childcare (Recommendation 4.1); (2) changes that the Census Bureau could make in the near future after further research to bring paid childcare and childcare subsidies into the threshold and resources respectively; and (3) changes that would require considerable research and discussion to address the issue of unpaid childcare.
Action on stages 2 and 3 begins with the recognition that households with children vary considerably in whether or how much they use paid childcare and the types of care used. Defining a childcare need and assigning the appropriate dollar amount to meet that need is complex, as it is for medical care need, and research on the former is at an early stage. For this reason, additional research is needed to build consensus on the conceptual issues and to develop practical methods for implementation, as has been done for medical care. The recommendations in this chapter, therefore, reflect incremental steps that, along with future research, could improve the accuracy, consistency, and transparency of childcare in the SPM.
4.3.1. Broadening the Concept of Childcare Need
To more accurately capture families’ childcare needs, the panel recommends the following. First, as stated in Recommendation 2.4, a set of childcare needs should be developed for the threshold for households with children under the age of 13 (or up to age 18 if a child is disabled)—as is done with other elements of the FCSUti bundle. This would increase transparency in the SPM by making explicit the full range of basic needs categories faced by households, and it would also increase consistency with the handling of other costs. Consistent with the incremental approach endorsed by the panel, the childcare need would initially be assigned only to households that use paid childcare—but ideally, in the future, this need would be assigned to all households with children.
RECOMMENDATION 4.2: For households with children under the age of 13 (or up to age 18, if disabled) that are using paid childcare (paid out of pocket and/or subsidized), a basic childcare need should be included in the threshold. In the near future, the Census Bureau should conduct research to develop and implement a methodology for defining the amount of this basic childcare need, varying by age and number of children, geographic location, and hours of paid care used.
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5 Childcare may actually be a more consistent expense for families than some other threshold categories. For example, medical care and clothing both tend to be temporally “lumpy” purchases, but childcare is a constant and smooth purchase.
Childcare costs for paid care vary substantially by age, number of children, types of care (home-based, center-based), quality, hours, and geographic location, among other dimensions. Some of these elements (e.g., type, quality, and hours of care) are subject to parental choice and can vary considerably even within the course of a year, while age, number of children, and geographic location are relatively more fixed. For this reason, the panel recommends establishing a basic need defined by age and number of children and geographic location.
One option for establishing the basic childcare need is to use state and federal policies directing reimbursement rates for subsidized care. Each state collects considerable data on childcare costs through childcare market rate surveys and sets reimbursement levels as part of their Child Care and Development Fund (CCDF) programs. Another option for informing threshold need amounts that the Census Bureau might explore is the National Database of Childcare Prices (NDCP). The NDCP is an official federal (U.S. Department of Labor) data source that provides price information at the county level by type of provider and age of children.6 These market rate surveys, along with data from other recent research, provide a data infrastructure that may be useful for establishing a basic childcare need.7
Implementing Recommendation 4.2 would make the treatment of paid childcare consistent with that of other threshold components like food and shelter. There are, however, issues that must be addressed before the PPM can transition to this approach. States vary in the percentile of market rate survey childcare costs used for their programs, so the Census Bureau would need to weigh options to address this; for example, the PPM could apply a uniform percentile based on CCDF, or a modification of CCDF, across states. Before this can be resolved, the presumption that CCDF payments are sufficient to purchase childcare deemed adequate by most people requires further scrutiny. For example, childcare centers that operate with state or federal subsidies may report prices paid that understate their overall costs.8 Other options for data on childcare costs exist, such as relying on Consumer Expenditure Survey data as the SPM currently does for several important threshold categories. These are important research questions in need of attention.
4.3.2. Estimating Childcare Resources
Just as childcare needs should enter the PPM threshold, financial assistance that defrays the cost of childcare should be added to household resources. Thus, the calculation of resources should include the value of childcare subsidies and childcare tax credits received by households. Here, too, the panel recommends an incremental approach, starting with households that use paid childcare before ultimately including all households with children.
RECOMMENDATION 4.3: To accurately assess a household’s ability to meet its needs, for households that have children and that use paid childcare, in the near future, the Census Bureau should research, develop, and implement a methodology for valuing assistance received by the household for childcare, so that it can enter into the calculation of the household’s available resources.
Childcare resources vary substantially across households. Therefore, for households that use paid childcare, resources would include the value of any subsidies or tax credits received. Such subsidies may come in the form of vouchers funded by states or by the federal government, or through an array of childcare-assistance programs, and may also include the value of childcare tax credits. Accounting for these resources would require new CPS-ASEC
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6 See www.dol.gov/agencies/wb/topics/childcare.
7 Examples include the University of Washington’s Self Sufficiency Standard, the ALICE Project (www.unitedforalice.org/), Massachusetts Institute of Technology’s living wage project (livingwage.mit.edu/), and the Economic Policy Institute’s Family Budget Calculator (www.epi.org/resources/budget/). In one application of these data, Danielson and Thorman (2019) used California’s 2016 Regional Market Rate survey to add preschool care costs to poverty thresholds for all families with 3- or 4-year-olds. While federal guidelines recommend payment rates as part of CCDF, states vary considerably in their practices (Borowsky et al., 2022). In light of this variation, the Urban Institute’s CCDF Policies Database, which collects detailed information about program rules in states and territories, may be a useful resource for implementing the panel’s recommendations.
8 See www.stlouisfed.org/on-the-economy/2022/oct/estimating-affordability-child-care-us-states.
questions, updates to current methods, and imputation.9 The panel recommends that the CPS-ASEC ask respondents what types of childcare they used, for how many hours, and whether a government agency helped pay for that care; separately, if government assistance was received, the question set should include whether that assistance covered the full cost or a portion of the cost.10 With this information, the Census Bureau could impute the value of the subsidy. Researchers have developed standard questions about childcare type and subsidy receipt that the Census Bureau could draw on for this purpose. The panel endorses this approach, rather than one that asks parents the value of the subsidy, because parents are unlikely to know or be able to report accurately on subsidy (or copayment) amounts (e.g., see Shantz, 2019).
Census Bureau research should investigate options for estimating the value of subsidies received by households with very young children enrolled in pre-K or Head Start, as this may also require additional survey questions. Children in states with universal programs have access to benefits that presumably cover the majority of the childcare need that would be included in the PPM threshold.
In addition, to implement Recommendation 4.3, the Census Bureau will need to revisit its approach to childcare tax credit receipt. Currently, the Census Bureau models the Child and Dependent Care Tax Credit (CDCTC) in its tax model for the SPM, but this portion of the credit is not broken out separately from tax liability or refundable tax credits. To assess the resource side of childcare in a transparent and comprehensive manner in the PPM, the CDCTC would ideally be combined with other childcare subsidies received, to create a measure of total childcare assistance.11 However, the CDCTC interacts with other parts of the tax calculation and may not be easily separated out, particularly for the American Community Survey-based estimates that rely on the TAXSIM model used in the SPM. Another option that could therefore be explored would be to include the CDCTC benefits in the PPM through their effect on reducing positive tax liability.
The question of whether to cap, at the threshold need, the value of childcare subsidies and tax credits included in resources also requires further research. One could argue that the cap is not needed because childcare subsidy programs (presumably) already provide subsidies based on need, and the CDCTC reduces federal tax liability regardless of the definition of that need. But crediting families the value of a subsidy that goes beyond the amount of need would be inconsistent with the approach proposed by the panel for medical care and housing. Additionally, while the panel recommends that this question be studied, cases in which subsidies exceed need are likely uncommon, and the amounts are likely to be small.
4.3.3. Long-Term Changes to Address Unpaid Childcare
Moving beyond market childcare, the calculation of household resources would ideally include—in addition to childcare subsidies and tax credits—the value of unpaid childcare, just as the threshold would ideally include the need for childcare for all households with children, regardless of whether they use paid care. The panel recognizes that tackling this issue will require extensive future discussion and research, as indicated in Recommendation 4.4.
RECOMMENDATION 4.4: Recognizing that many households with children do not use paid childcare and are providing care for their children themselves, whether through parental care or care by other relatives or friends, future discussion and research are needed on the topic of unpaid childcare and whether and how such care should be reflected in poverty measurement.
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9 The childcare questions in the CPS-ASEC are:
- Did anyone in this household PAY for the care of their children while they worked in (year)?
- Which children needed care while their parents worked?
- What is the easiest way for you to tell us how much you and others in this household paid for childcare while they worked in (year): weekly, etc.?
- How much did they pay for childcare?
- How many payments did they make during (year)?
(www2.census.gov/programs-surveys/cps/datasets/2022/march/asec2022_ddl_pub_full.pdf).
10 The question of employer-assisted childcare is also pertinent. However, the share of employers that provide childcare assistance is very low, and most of that assistance is in the form of information and referral or help with emergency childcare.
11Wheaton and Stevens (2016) describe the multiple approaches to modeling taxes used in the SPM, which include the CDCTC.
TABLE 4-1 SPM versus Proposed Long-Term Approach
| SPM | Proposed Approach | |
|---|---|---|
| Threshold | Childcare need not included | Childcare need included for all households with children under age 13, or age 18 if a child has a disability (with amount varying by number and age of children, and by geographic area) |
| Resources | Value of tax credits included | Value of subsidies and tax credits included (capped at value of childcare need) |
| Ideally, a valuation of unpaid care | ||
| Childcare Costs | Deducted from resources (capped at the lower-paid parent’s earnings) | Not deducted from resources |
| Who Benefits? | Both working parents (or a single parent who is working) | All households with children under age 13 |
SOURCE: Panel generated.
Estimating the value of resources for households that do not use paid childcare (or that use paid childcare for only a portion of the time for which care is needed) is a major challenge, and an appropriate and transparent method would have to be developed. Consider cases in which parents provide care themselves (e.g., by splitting shifts or having one parent home full-time) or use unpaid care provided by friends or family. These households receive no government subsidy (or only a partial subsidy if they use a mix of paid and unpaid care) but may well be benefitting from unpaid care (e.g., a grandparent as caregiver) or parental care—that is, they are in essence subsidized from their own or other households’ resources. Parents who provide care may also earn less as a result, although this impact would be captured in the PPM resource calculation.12
Although an extensive literature exists on valuation of nonmarket home production (e.g., NRC, 2005, Chapter 3; Suh and Folbre, 2015), further research is needed to probe the conceptual issues and to explore potential approaches to including childcare in the resource calculations for households with children that do not use paid care or that use a mix of paid and unpaid care. One possible approach to be explored by the Census Bureau for valuing unpaid childcare, for example by parents, family, or friends, would be to assume that the value of the care is equal to the need level established in the threshold. This approach would eliminate the problem of valuing different parents’ unpaid care differently based on factors such as education level or hourly wage rate.
4.3.4. Implications of Proposed Long-Term Changes and Need for Future Research
As stressed in this chapter, moving to a more comprehensive measure of childcare needs and resources will require considerable further research and development. Table 4-1 summarizes and compares the main elements of the recommended approach, which would include childcare in the set of threshold needs and would account for childcare receipt in resources, with the current approach of the SPM.
Two example household types serve to illustrate how childcare needs and resources might be defined under the proposed future approach. Household 1 has two preschool-aged children, ages 1 and 4, and lives in a moderately expensive childcare market in the Northeast. Their threshold would reflect the CCDF-approved reimbursement rate for family day care for the 1-year-old (the most common type of care used for 1-year-olds) in their area, and the CCDF rate for center care for the 4-year-old (the most common type of care used for 4-year-olds). Alternatively, the threshold amounts could be defined as the weighted average of the reimbursement rate for the various types of care used by children of the given age. On the resource side, the household would receive credit for the imputed value of any childcare subsidy or tax credit reported, as well as the value of any unpaid care received from friends or family or that the household itself provides, capped at the amount of their childcare need. The unpaid care would be valued at the CCDF reimbursement rate for in-home childcare for a child of the given age in that geographic area.
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12 Parents may choose to provide care themselves in light of the perceived benefits of doing so, as well.
Household 2 has two school-aged children, ages 8 and 12, and lives in a relatively inexpensive childcare market in the Southeast. Their threshold would reflect the CCDF-approved reimbursement rate for afterschool childcare for the 8- and 12-year-old children. On the resource side, the household would receive credit for the imputed value of any childcare subsidy or tax credit reported, as well as the value of any unpaid care received from friends or family or that the household itself provides, valued at the CCDF reimbursement rate for in-home childcare for a child of the given age in that geographic area.
Clearly, moving toward such an ideal measure of childcare will require considerable future research. The current approach of assigning childcare needs (and benefits) only to families that are employed and use paid care is incomplete. All young children need care, and school-aged children need care outside of school hours—but these needs are met in various ways. However, the panel also recognizes that broadening the definition of childcare need, assigning value to that need, and assigning value to resources families receive to meet that need are all complex steps that require more research.
Future research is also needed regarding the ages and circumstances for which childcare need should be assumed. For instance, Recommendations 4.2 and 4.3 assume that all children need care through age 12—a universal need is not assumed for children age 13 or above. Research might consider situations in which families utilize care for their children age 13 and above outside of school hours or during summers. As alluded to above, solutions for families that use a mixture of paid and unpaid care—which suggests adjusting estimates by hours of care—should be investigated.
This research on childcare could be extended to consider parallel contexts in which care for disabled or elderly adults is taken on by younger family members, or in which adults are caring for adult children with disabilities. To what extent do the costs of care for elderly parents mirror the costs of childcare? How much do public programs defray such costs? Future research in this arena may shed light on a basic need for care—and its poverty implications—at later stages in life.
