The U.S. child care system is failing families, according to Treasury

The Treasury Department has determined that the country’s child care system is “unfeasible,” saying it is plagued by market failures that put quality care out of reach of many families.

In a report to be released Wednesday, Treasury details the struggle many parents face in caring for their children, especially when bills pile up before their peak income years.

At the same time, the Treasury found that many workers in the industry are paid low wages, suffer a high turnover and face discrimination.

Treasury defends federal government support for paid family leave, universal preschool, and significant tax credits for parents and care of dependents, as Democrats in Congress are working to draft a social spending bill that can reach $ 3.5 trillion.

Treasury Secretary Janet Yellen and Vice President Kamala Harris will highlight these initiatives during a joint speech Wednesday afternoon in the department.

Individual families should not have the sole responsibility for funding quality care that benefits the economy more broadly, the Treasury argues in the report, adding that the system does not “serve many families properly.”

“This is not just a coincidence, but sound economic principles explain why reliance on private money to provide childcare should not be too short,” the report says.

“Having a childcare sector that works well is good for working families. It’s good for children. I would also stress that it’s good for the rest of us,” said Catherine Wolfram, deputy secretary for economic policy. of the Treasury. “It’s critical to a well-functioning economy.”

These programs include high price tags. House Democrats estimate that two pillars of the agenda: universal child education and childcare subsidies for low-income families would cost $ 450 billion. A national paid licensing program could require approximately $ 500 billion more.

Democrats are also proposing a permanent expansion of the tax credit for dependent care, worth about $ 100 billion. The single largest line item is an improved children’s tax credit extension until 2025. The Joint Committee on Taxation projected it would cost $ 550 billion in a decade, and many Democrats pledge not to let it expire.

“This money allowed people to keep a roof over their heads, put food on the table and be able to pay for the diapers, medicine and school supplies their children need,” said House Ways and Means committee chairman , Richard Neal, of Massachusetts. he said Tuesday as his committee debated the legislation.

The breadth and cost of the programs have sparked attacks by Republicans, who accuse Democrats of trying to insert more government control and influence into the lives of Americans from the moment they are born.

“We should focus on ensuring that working taxpayers can find the best care for their children instead of blindly throwing money at the problem and considering it a solution,” Republican Party Representative Virginia Foxx said. of North Carolina, a member of the House House ranking and the Labor Committee, said during the debate on the bill.

The Treasury report found that the average family with a child under the age of 5 has to devote 13% of their income to care, which is unbearable for many families. This inability to pay is what economists call a “liquidity constraint”: parents cannot spend more on caring for their children than they earn on work and cannot borrow from their future income to cover the cost.

At the same time, leaving the workforce carries its own sanctions. The report cites a study by Harvard economists Claudia Goldin and Larry Katz, which found that an 18-month break from work was linked to a 41% decrease in the income of women with MBAs.

However, the report shows that the participation of women in the workforce has decreased in the last 20 years. Other advanced economies, such as the United Kingdom, France, and Canada, now have higher participation rates than the United States.

The report found that part of the problem lies in the fragmented daycare industry itself. He cites research showing that most of the sector’s $ 60 billion for-profit suppliers have margins of less than 1%. The average salary of a child care worker is $ 24,230, making more than 15% of them live below the poverty line in 41 states.

According to recent polls, provisions on daycare in the Democrats ’spending package are widely popular. Nearly three-quarters of registered voters support paid family leave, according to a Morning Consult / Politico poll last month. A separate poll of likely Data for Progress voters found that 60% approve of universal preschool, including 41% of Republicans.

“During this period of critical negotiations, there is a compelling economic case that is in the best interest of reducing costs for working families,” said Rohini Kosoglu, the vice president’s internal policy adviser.

On Wednesday, House committees will finish debating the proposals and then compile them into a single piece of legislation. Senate Democrats will also want to have a chance to think about it and there is still no consensus on the size or scope of the final package.

But key senators on Tuesday vowed not to set aside childcare provisions.

“We are leaving our workers in this country in danger and we are scamming our economy,” said Sen. Patty Murray of D-Wash. “And that’s unacceptable.”

– Karen James Sloan of CNBC contributed to this article.