The new child care tax credit combines European-style policy with support for conservative values.(Photo by Aaron Buden via Unsplash)
The Iowa child care crisis continues with an insufficient number of affordable child care facilities available for people throughout the state. This has a clear impact on the state’s economy, making it more difficult for workers to remain in or join the workforce.
The shortage of labor that is currently affecting cities and towns throughout Iowa and the U.S. is related in part to the unavailability of affordable child care.
Working with University of Iowa urban planning students on planning issues in small and medium sized Iowa communities, we invariably heard that one of their top problems was the shortage of adequate and affordable child care. In response to this crisis, Gov. Kim Reynolds formed a Child Care Task Force in March.
There is a straightforward solution to the child care crisis: increase family income through monthly allowances based on the number of children in a household. Every European Union nation (including former EU member the United Kingdom) has either a universal family benefit — France, for example — or a means-tested family benefit, such as in the UK, in which households must be below an income threshold to be able to qualify for benefits. But for families that do qualify, they are entitled to an income supplement based on the number of children in their household.
With the passage of the 2021 American Rescue Plan, Congress enacted a $105 billion Child Tax Credit which provides a monthly check of $250 per month ($300 for children under six) for each child in a family. The benefit is means-tested as it is phased out for families earning over $150,000 per year ($112,500 for a single-parent family).
The new Child Tax Credit:
- Increases the total amount of tax credit families can receive
- Makes low-income families who pay no taxes eligible for the credit — they weren’t before
- Is paid monthly rather than once a year as tax credits are typically paid.
The 2021 Child Tax Credit therefore looks very much like a European Union-style child benefit. It will enable families to spend more money on their children — including, if they wish, on child care. Or it can enable parents to stay home and care for their children.
A recent study by the Niskanen Center in Washington, D.C., which projects how the Child Tax Credit funds will be distributed, shows Iowa and other rural states will be among the largest gainers. Their residents will earn higher per- capita amounts through the Child Tax Credit than other states. The study’s authors estimate that Iowa will rank 11th among the 50 states and the District of Columbia in net benefit per capita, with other rural states, such as South Dakota and Nebraska, in the top 10. Moreover, each of the top 11 states, except New Mexico, are Republican states.
The politics of the Child Tax Credit will therefore be very interesting. The credit is a European-style family benefit adopted in legislation only supported by Democrats in the U.S. Senate and the House. Only one member of the Iowa congressional delegation, the lone Democrat Cindy Axne, voted for the American Rescue Plan and therefore for the credit.
Democrats want to extend the revised Child Tax Credit beyond the first year for which it was authorized by Congress. But will Republicans, including Iowa Republicans, support it? As noted, the Child Tax Credit provides a monthly check sent to families, many of whom need child care. And if families decide to use the money instead to enable a parent to stay at home with their children, that also supports Republican values. And the program primarily benefits residents of Iowa and other rural, Republican states.
For Republicans who claim Democrats lean toward socialism, it seems like it will be hard to resist the Child Tax Credit. Of course, they can claim that it needs to include a work requirement. But do they want to be on record as telling parents it is better to work than to be at home taking care of their children?
In the coming year, it will be very interesting to see how the state’s dominant political party will embrace the Child Tax Credit, including whether Gov. Reynolds’ Child Care Task Force will urge support for extension of the Child Tax Credit. Stay tuned.
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