America's (D)evolving Childcare Tax Laws

Abstract

Proponents have touted the ability of the Tax Cuts and Jobs Act (the TCJA) — enacted in the twilight of 2017 — to help American working families. But while the TCJA expanded some benefits available to parents with dependent children, these parental tax benefits may be claimed regardless of whether or to what extent childcare costs are incurred to work outside the home. To help working parents with these costs (which are often their largest expense), Congress might have turned to two other mechanisms in the tax law — the “child and dependent care credit” and the “dependent care exclusion.” While these childcare tax benefits are only available to working parents that pay for childcare, stringent limitations have kept many from recovering anything near their actual costs, particularly in the critical years before children reach school-age. As a result, the Code has been taxing families with different childcare needs inequitably. But the TCJA left these childcare tax laws untouched and thus did nothing to address this problem. By exploring critical junctures in their development, this Article seeks to understand how America’s tax laws have (d)evolved in this manner and, in doing so, situates some of TCJA’s alleged reforms into their historical context.

America’s childcare tax laws have not always been so limiting. In the seventies and eighties, the Code evolved significantly to allow working parents to claim relief for a relatively substantial portion of their childcare costs, resulting in more equitable taxation of family models. But in the decades following this evolution, Congress generally failed to adjust childcare tax benefits — even for inflation — allowing them to devolve in real value as childcare costs rose. Meanwhile, Congress created new and expanded existing tax benefits available to all parents even if they did not need childcare. Thus, over the past several decades, Congress not only restored but also perpetuated the inequitable taxation of different family models remedied by earlier reforms. The changes made in TCJA are, therefore, just the latest iteration of a decades-old trend.

In addition to revealing that the TCJA was a tepid if not specious attempt to address the working family’s plight, this history raises broader questions of political feasibility. This Article identifies several factors such as increased legal complexity, sophistic political rhetoric and, perhaps most significantly, changed normative expectations to explain the electorate’s seeming apathy to our childcare tax laws’ (d)evolution. Using this historical context, this Article argues that even modest changes to our childcare tax laws, while incapable of enacting systemic changes on their own, could nevertheless enact historically significant reform and perhaps revive dormant debates about the role the American government should play in the lives of parents.

Keywords: tax credits, deductions, EITC, dependent care, tax reform, tax policy