Donald Trump departed from traditional Republican policy priorities in a speech last evening in Pennsylvania. Trump unveiled his new Child Care Plan in the speech and on his campaign website. The proposed policy will contain six weeks of mandatory paid maternity leave for new mothers (paid for by taxpayers) and tax deductions for childcare.
Watch the message delivered by Donald Trump and his daughter Ivanka here:
Perhaps the Donald hasn’t been paying attention, but employers have been addressing absence due to child birth for some time in increasing numbers through Short Term Disability (STD) programs. These benefits cover absence due to the birth of a child and other personal illness or injury at an average of 60% of an employee’s salary. According to the Bureau of Labor Statistics in 2014, 40% of workers in private industry had access to an employer sponsored STD plan. Since 1999, this rate has been increasing. The average cost of these plans to employees is $.05 per hour worked.
It would be more cost effective and have a much larger impact for workers and families to create incentives for more employers to offer STD plans for their employees to participate in. This approach would offer several benefits not seen in a proposal for mandatory paid maternity leave:
STD rates are based on a risk pool. Costs are shared among the members of the pool to lower the cost for everyone.
STD plans cover all illnesses and benefit all employees. Not just women having a baby.
Private employer plans don’t limit leave to six weeks. With medical necessity leave may be longer subject to certain limits. (Average of 26 weeks)
Employers already have a range of plans to choose from and there is competition in the market to include plans available to individuals that do not have an employer sponsored plan.
Another part of the Trump plan is an expansion of the child and dependent care tax credit. Subject to limits and income the current credit returns dollar for dollar 20% to 35% of allowable child or dependent care expenses. Trump’s proposal is to make dependent care costs a tax deduction which lowers taxable income. The plan also has an accompanying modification to the Earned Income tax Credit (EITC) worth up to $1200. The EITC already estimates an incorrect payment percentage of almost 30% and is the largest form of income redistribution in the tax code.
Again, employers have addressed the burden of child care costs by increasingly offering Dependent Care Flexible Spending Accounts (FSA’S). These accounts allow parents to pay for childcare expenses with pre-tax dollars reducing the cost of childcare by an average of 30%. By offering incentives for employers to offer these low cost plans and allowing greater contributions into them, a government policy would be encouraging parents to save appropriately to cover the expense of childcare and realize significant savings. The current limit is $5,000 for individuals and married couples filing jointly. Trump’s savings account proposal with rollover capability is capped at $2000. Low income parents will also be eligible for a $500 match on the first $1000 they save. Making changes to the current IRS rules that govern FSA accounts to allow rollover and expand the definition of services would be similar to what is now allowed in Health Savings Accounts (HSA’s), while keeping them in the private sector.
Employers, who are subject to market forces in order to hire talent, have been innovating employee benefits regarding leave and childcare over time. By encouraging continued innovation in this area, government policy can be very effective without increasing taxpayer costs or providing a direct subsidy.
As an analysis by AEI demonstrates, many things subsidized by the government, have a tendency to increase in price at a much faster rate than the rate of inflation. Further direct or indirect subsidies could make the childcare line look more like the one for college tuition.
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