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OCR Page 1 of 27Draft for Discussion Purposes Only
December 2, 1997
OPTIONS FOR CHILD CARE INITIATIVE
I.
Tax System. Options for investing in child care through the tax system include:
A.
Child and Dependent Care Tax Credit. Modify the Child and Dependent Care Tax Credit
(CDCTC) by raising the top rate and moving the phase-out range. One option considered would
raise the top rate from 30 percent (current law) to 50 percent and move the phase-out range from
$10,000-$28,000 (current law) to $30,000-$59,000, indexed for inflation thereafter. Presently, the
CDCTC phases down from a high of 30 percent at $10,000 or less of income to 20 percent at more
:
than $28,000 of income (a phase out rate of one percentage point per $2,000 of income). Under this
option, the credit would phase-out at a rate of one percentage point per $1,000 of income, from a
high of 50 percent at $30,000 or less of income to 20 percent at more than $59,000. This option
would cost $5.2 billion through the year 2003; less expensive options, using different rates and
phase-out ranges, are also available. The credit could also be made refundable.
B.
Tax Credits to Corporate Sector. Provide a tax credit to businesses that incur costs related to
providing child care services to their employees. Qualifying expenses could include those a
business incurs to build or expand a child care facility, operate an existing facility, train child care
workers, reserve slots at a child care facility for employees, or provide child care resource and
referral services to employees. Under one option, the credit could cover 50% of qualified costs
incurred, but could not exceed $150,000 per year. This option has been estimated by the Joint
Committee on Taxation to cost $2.6 billion over five years.
II.
Child Care and Development Block Grant. Options for increasing federal investment in
the Child Care and Development Block Grant (CCDBG) include:
A.
Distribute additional funding to States by current CCDBG formula without restriction.
B.
Require that states set benchmarks to access additional funding. To access additional
funding, states would be required to set benchmarks, concerning, for example, eligibility and
priority (i.e. targeting) levels, copayments, and reimbursement rates. While states would have
considerable flexibility in setting the benchmarks, continued additional funding would be contingent
on progress toward meeting the benchmarks.
A possible recommendation is to increase the investment by $4 billion over five years, which would
provide subsidies for approximately 280,000 children per year. Less money would mean
proportionately fewer additional children subsidized.
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