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Proposal 10: Supporting low-income workers through refundable child-care credits

Resource Type: Other
Author(s): Ziliak, James Patrick;
Date Issued: [n.d]
Publisher(s): Hamilton Project
Description: This policy memo introduces a way to restructure an existing federal child-care tax credit to better incentivize work and improve the financial and child well-being for low-income families. Specifically, I propose converting the Child and Dependent Care Credit (CDCC) from a nonrefundable credit--a credit that cannot exceed the income taxes owed by a family--to a refundable credit--one that can result in a net gain after taxes--that is targeted to low- and middle-income families. Because current law does not limit eligibility for the CDCC based on income, the majority of tax expenditures are spent on those families with annual incomes between $100,000 and $200,000 (Maag 2013). I propose capping eligibility at $70,000 and making the credit a progressive function of income, the age of the child (ages zero to four versus five to twelve), and utilization of certified, licensed care facilities. These reforms, to be implemented at the federal level, will make labor market work more attractive to low-income families by providing much-needed financial relief from the high cost of child care. In addition, by reducing the out-of-pocket cost of care for low-income workers, the reformed credit will enable more families to place children in formal instead of informal care settings. (author abstract)
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Source: Washington, DC: Hamilton Project. Retrieved June 9, 2014, from
Topics: Policies > Economic & Social Policies > Tax Policies
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