As the One Big Beautiful Bill Act is implemented and its economic impact becomes reality, we can expect the good, the bad, and the ugly. On the bright side, there are several provisions that are intended to help parents and children, with the goal of providing more affordable, easily accessible childcare.
Now it is time for states to do their part.
The OBBBA has three key provisions on this front: 1) Expands tax credits to employers providing childcare and family medical leave; 2) increases the maximum annual tax-free contributions dependent care flexible spending accounts, which parents can use for daycare, and 3) raises the amount of general childcare expenses that are covered by the Child and Dependent Care Tax Credit (CDCTC).
Because relatively few companies provide care services themselves, the greatest splash will likely come in the expansion of the CDCTC. This non-refundable credit program has a new cap of $1,050 for a single adult or $2,100 for those filing jointly, approximately double what it had been since 2001. Depending on income and filing status, eligible expenses range from 20 to 50 percent of childcare costs. Importantly, the setting of care does not matter for the tax credit—childcare payments to neighbors and nannies count too.
Who (and where) will benefit the most from changes to the CDCTC? A couple thousand dollars in the form of a tax credit is a massive benefit to some and a laughable amount to others. The Childcare Regulation Index allows us to better predict the relative winners and losers of the OBBBA’s family-related measures. Unsurprisingly, parents who get the most out of the childcare tax credits are those who live in states where childcare is less expensive.
While there are a myriad of factors contributing to supply and demand for childcare, our analysis of the states’ childcare licensing regulations shows that red tape is a major contributor. Regulations represent barriers to entry for new businesses, limit the pool of qualified staff members, and diminish the range of flexible childcare options. If, like Vermont, your state requires preschool teachers to have a bachelor’s degree, a $2,100 tax credit doesn’t offset a month’s expenses.
Continue reading from the Southern California News Group.
Anna Claire Flowers is a family policy fellow at the Archbridge Institute and lead author of the “State Childcare Regulation Index.” She is a Ph.D. candidate in the Department of Economics at George Mason University and an instructor at the Catholic University of America's Busch School of Business. She studies the impact of economic policies on family formation and family decision-making.
Edward Timmons, PhD, is Vice President of Policy at the Archbridge Institute. He leads the institute's economic policy strategy, identifying focus areas and disseminating work to key stakeholders and policymakers. His own research focuses on labor economics and regulatory policy; he is regularly asked to provide expert testimony to U.S. states on occupational licensing reform and the practice authority of nurse practitioners. Dr. Timmons received his Ph.D. in economics from Lehigh University and his B.A. in economics and actuarial science from Lebanon Valley College. He publishes a weekly newsletter on Substack with the latest research and policy insights surrounding occupational licensing.
Economics of Flourishing
As the One Big Beautiful Bill Act is implemented and its economic impact becomes reality, we can expect the good, the bad, and the ugly. On the bright side, there are several provisions that are intended to help parents and children, with the goal of providing more affordable, easily accessible childcare.
Now it is time for states to do their part.
The OBBBA has three key provisions on this front: 1) Expands tax credits to employers providing childcare and family medical leave; 2) increases the maximum annual tax-free contributions dependent care flexible spending accounts, which parents can use for daycare, and 3) raises the amount of general childcare expenses that are covered by the Child and Dependent Care Tax Credit (CDCTC).
Because relatively few companies provide care services themselves, the greatest splash will likely come in the expansion of the CDCTC. This non-refundable credit program has a new cap of $1,050 for a single adult or $2,100 for those filing jointly, approximately double what it had been since 2001. Depending on income and filing status, eligible expenses range from 20 to 50 percent of childcare costs. Importantly, the setting of care does not matter for the tax credit—childcare payments to neighbors and nannies count too.
Who (and where) will benefit the most from changes to the CDCTC? A couple thousand dollars in the form of a tax credit is a massive benefit to some and a laughable amount to others. The Childcare Regulation Index allows us to better predict the relative winners and losers of the OBBBA’s family-related measures. Unsurprisingly, parents who get the most out of the childcare tax credits are those who live in states where childcare is less expensive.
While there are a myriad of factors contributing to supply and demand for childcare, our analysis of the states’ childcare licensing regulations shows that red tape is a major contributor. Regulations represent barriers to entry for new businesses, limit the pool of qualified staff members, and diminish the range of flexible childcare options. If, like Vermont, your state requires preschool teachers to have a bachelor’s degree, a $2,100 tax credit doesn’t offset a month’s expenses.
Continue reading from the Southern California News Group.
Anna Claire Flowers
Anna Claire Flowers is a family policy fellow at the Archbridge Institute and lead author of the “State Childcare Regulation Index.” She is a Ph.D. candidate in the Department of Economics at George Mason University and an instructor at the Catholic University of America's Busch School of Business. She studies the impact of economic policies on family formation and family decision-making.
Edward Timmons
Edward Timmons, PhD, is Vice President of Policy at the Archbridge Institute. He leads the institute's economic policy strategy, identifying focus areas and disseminating work to key stakeholders and policymakers. His own research focuses on labor economics and regulatory policy; he is regularly asked to provide expert testimony to U.S. states on occupational licensing reform and the practice authority of nurse practitioners. Dr. Timmons received his Ph.D. in economics from Lehigh University and his B.A. in economics and actuarial science from Lebanon Valley College. He publishes a weekly newsletter on Substack with the latest research and policy insights surrounding occupational licensing.
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