Trump’s Childcare Plan: Advantage to the Advantaged

Econ value of tax deduction

NBC offers this summation of a crucial portion of the Trump and Clinton child care proposals:

“Trump: Working parents – and parents who stay home to care for children – can deduct the costs on their taxes via the Earned Income Tax Credit. The campaign estimates that middle class families could receive a $1,200 tax break.

Trump also proposes a Dependent Care Savings Account that allow the accumulation of funds and are tax deductible and appreciate tax free. Dependent care accounts already exist but must be used by the end of the year and only available through an employer.

Clinton: She wants to cap child care costs at ten percent of a family’s income. To do that, she’d rely on tax cuts or state block grants for the government to subsidize costs exceeding ten percent.”

Fuzzy stuff:  Notice the portion of the Trump explanation which says  the family can deduct the costs on their taxes via the Earned Income Tax Credit.”  Tax deductions and tax credits are two very different animals.

“Deductions reduce taxable income and their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Credits reduce taxes directly and do not depend on tax rates. However, the value of credits may depend on the taxpayer’s basic tax liability.” [TaxPolicyCenter]

Drilling down we find some more variations:

“Some tax credits, however, are fully or partially refundable: if their value exceeds a person’s tax liability, the excess is paid to the filer. The earned income tax credit (EITC) is fully refundable; the child tax credit (CTC) is refundable only if the filer’s earnings exceed a $3,000  threshold.” [TaxPolicyCenter]

The problems with interpreting Trump’s proposal is the conflation of a tax credit with a tax deduction.  It’s either a deduction or a credit but it can’t be both at the same time.   And, some families need help before April 15th:

“Experts say that Trump’s plan is a good start and a recognition that the issue is important to women and families, but Vivien Labaton, co-executive director of Make It Work Action, said Trump’s plan offers less than Clinton’s.

“His childcare proposal is really designed for the Ivanka Trump’s of the country more than the working families who need help,” Labaton said.

She said any plan, including Trump’s, that offers a tax rebate won’t work for many lower income families. Many struggling families don’t make enough to pay taxes and other struggling families who do pay taxes need up-front relief up before tax time.” [NBC]

And, from the Los Angeles Times:

“On child care, Trump would lessen the burden by giving parents a tax deduction for the average cost of child care in their state. For example, his campaign said a family earning $70,000 and paying $7,000 a year in child care would get an $840 tax cut — or about a month’s worth of day care. But the deduction would provide the greatest benefit to wealthier families, who pay more income tax. Low-wage workers, who often spend a disproportionately large share of the income on child care, pay little or no income tax. For families that pay no income taxes, Trump would increase the Earned Income Tax Credit by as much as $1,200 a year. But a once-a-year-check from the government is not always helpful for families struggling week-to-week to pay their childcare bills.”

When comparing the proposals on their potential immediate and positive impact on working families, score the point for Secretary Clinton.

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