In the United States, child care has become one of the largest costs for families with young children. Over the past three decades, child care prices have risen at more than twice the rate of inflation, squeezing family budgets and pushing mothers out of the labor force. Although research into early childhood education has consistently revealed its educational, health, and economic benefits to children, a lack of public investment has resulted in a system that is mostly funded by parental fees. This has produced a child care market without enough supply to meet demand—and with much more choice, quality, and access for higher-income families.
Lowering child care costs for families is a win-win-win policy objective. Parents win because they can make choices about their economic security; they might rejoin the labor force, go back to school, or start a new business. Children and early educators win because a publicly funded system can finally pay teachers a living wage while raising the overall quality of care, especially for children from less advantaged families. Finally, our economy and society would benefit since public investments in the health and education of young children have consistently been shown to provide the largest possible return on investment.
Potential weekly child care savings from the Build Back Better Act
The Build Back Better Act being considered by Congress includes two historic investments in early care and education: 1) two years of universal preschool and 2) a sliding scale limit on child care costs for families. While the details of the legislation are still being sorted out by the House and Senate, the core elements of the policy have come into focus.
This analysis is intended to estimate how much a family overburdened by child care costs would save under the Build Back Better Act. While families’ needs and circumstances may be unique, the author has built on a prior CAP analysis of household child care expenditures to examine a common scenario for working families with high child care costs. (To better understand the data source as well as how the author constructed the “typical family” used in this analysis, see Methodology below.)
The Build Back Better Act lowers families’ child care costs based on how their income compares to the typical income of a family in their state. This benchmark, called the state median income (SMI), is used so that benefits will be equitable and proportionate across states with vastly different costs of living. For instance, the bill would make child care free for low-income families making below 75 percent of the SMI, with a progressive sliding scale capping child care costs for middle-income families at 7 percent or less of their annual income. In other words, those with more income would pay a greater share, but no families would be above the affordability threshold of 7 percent.
The scenario presented in this analysis features a family whose child care costs currently take up about 10 percent of their income, which is common among working families. For this analysis, using the sliding scale benefit, the author anticipates that child care costs for this family would be capped at 5 percent of their annual income, which roughly corresponds to a family at 135 percent of the SMI.
Table 1 shows how much a family would earn in each state to be at 135 percent of the SMI, how much that family likely pays for child care now, and how much money they would save if child care costs were capped at 5 percent of annual income.
According to this analysis, the Build Back Better Act would lower these families’ annual child care costs by about $5,000 to $6,500 in most states.
The Build Back Better Act’s child care provisions would significantly lower the cost of child care for working families, allowing them to allocate that money to other pressing family needs. Lowering these costs for working families would have a concrete impact on the lives of parents and children, which would help reverse a long-running trend of the “middle-class squeeze,” whereby families have seen rising costs for fundamental needs such as housing, education, child care, and health care. Moreover, by making long-term investments in families, children, and early educators, it’s possible to rebuild an economy that works for everyone, not just those at the top.
Rasheed Malik is the associate director of research for Early Childhood Policy at the Center for American Progress.
In a 2019 CAP analysis, the author used the Survey of Income and Program Participation (SIPP) to estimate the weekly child care expenditures of families that met three criteria: 1) the family had at least one child under 5, 2) the family had an employed mother, and 3) the family reported paying for child care. On average, these families had weekly child care costs that amounted to $250 per week—or $13,000 annually—against an average income of approximately $130,000. This averages together all families that meet these criteria, capturing higher or lower costs based on preferences and needs—including the number of children in care, the amount of care they need, the type of care required, and geographic variation in the price of child care.
While the SIPP is a nationally representative survey, it does not sample enough households to produce reliable estimates of child care costs at the state level. However, for this analysis, the author adjusted the national average for each state to reflect the wide variation in child care prices. For many years, Child Care Aware of America has used market rate surveys of child care providers to publish the average price of child care in each state. This analysis rests on the assumption that if the average price of child care in a state is far below the national average, one should expect to find that the average family in that state spends far below the national average on child care.