Burr, King Unite to Renew Push for Affordable Childcare

January 24, 2017

WASHINGTON, D.C. – Today, U.S. Senators Richard Burr (R-N.C.) and Angus King (I-Maine) renewed their push to make childcare more affordable for families across the country by reintroducing the PACE Act. The legislation would update the federal government’s childcare-related tax credits to make them more useful to American families at a time when the costs of childcare remain prohibitively high.

“Childcare tax credits work,” said Senator Burr. “This is an issue that I’ve been working on with Sen. King for years, and I will continue to push for commonsense solutions that saves American families money. President Trump has prioritized making childcare more affordable through the tax code, so we feel strongly that the PACE Act should be on the table as a way to help working families afford the safe child care they need.”

“Too often today, the rising costs of childcare force parents to stay home from work or put their kids in less than ideal childcare situations – and neither of those circumstances are good,” Senator King said. “We need to bring the federal government’s childcare tax benefits out of the past and into the 21st century so that they reflect the realities that families face today and can provide them with the real, substantial assistance they were intended to. Doing so will benefit children, working families, and the Maine economy.”

For too many families, the cost of childcare can make it difficult to maintain employment and make ends meet. In nearly half of the country, the annual cost of full-time childcare for a 4-year old is greater than the average cost of in-state tuition at a 4-year college or university. Those pressures are felt most by low-wage workers who spend on average more than 30 percent of their income on childcare.

While the federal government provides two significant tax benefits to help offset childcare costs – the Child and Dependent Care Tax Credit (CDCTC) and Dependent Care Flexible Spending Accounts (FSAs) – they are both in need of an update. For example, neither policies have kept pace with inflation, meaning they have become less useful over time as the cost of childcare increases.

The PACE Act would enact several changes to make both tax policies immediately more generous and modify them to reflect the changing economic landscape by requiring an annual inflation adjustments that will provide families with greater spending power when seeking care for their children. Because both tax provisions affect care for the elderly and individuals with disabilities, those enhanced benefits will extend to them as well.

More specifically, the legislation would:

  1. Modernize the Child and Dependent Care Tax Credit by:
    • Making the credit refundable in order to expand the credit’s reach to low-income working parents
    • Increase the value of the credit by raising the credit rate for families of all income levels and creating a new top credit rate of 50 percent that phases down to 35 percent for higher-income families in order to expand the reach of the credit and put more money back into the pockets of working parents
    • Indexing the credit to inflation to ensure the value of the credit will not be eroded over time by rising childcare costs, but instead, will remain at a sufficient level to help make costs more affordable.
  1. Enhance Dependent Care Flexible Spend Accounts (FSAs) by:
    • Increasing the amount of pre-tax dollars families can put into these accounts from $5,000 to $7,500. This exclusion from gross income allows families to save money on income and FICA taxes, and the PACE Act’s increase means those savings will go even further than current law’s.
    • Indexing the new cap to inflation so FSAs can keep pace with the cost of childcare. Because the current $5,000 cap is not indexed to inflation, families are falling further and further behind the rising cost of care.  By raising the cap to $7,500, and indexing that amount to inflation, the PACE Act ensures FSAs are reliably updated to keep steady a parent’s purchasing power for their child’s care.

The legislation has been endorsed by the Maine Children’s Alliance, First Focus Campaign for Children, National Association for the Education of Young Children, and the Save the Children Action Network.

To read a copy of the legislation, click HERE. To read a one-page summary of the legislation, click HERE. Senators King and Burr introduced a similar piece of legislation last year.