Sen. King: Make Childcare More Affordable by Increasing the CDCTC’s Reach

For families struggling to make ends meet, the rising costs of childcare can be crippling. That’s why Sen. Angus King (I-Maine) says he partnered with Sen. Richard Burr (R-N.C.) to introduce the Promoting Affordable Childcare for Everyone (PACE) Act. The bill, which was announced in July, would alter two major existing tax benefits—the Child and Dependent Care Tax Credit (CDCTC) and Dependent Care Flexible Spending Accounts (FSAs)—in an effort to make them more valuable for working families.

The CDCTC is currently non-refundable. That means many parents who don’t earn enough to have taxable income are left out of the credit even though they face mounting childcare costs. The credit also loses value over time because it is not indexed to inflation. In other words, as the cost of childcare goes up—and the real value of the dollar goes down—the CDCTC does not keep pace.

Provisions in the PACE Act would address both of these problems, said King during an interview with Tax Credits for Working Families. “It would index parts of the credit to inflation to keep up with rising childcare costs, and it would also make the credit refundable to ensure that it’s actually a valuable tool for those who really need it and allow them to focus on keeping or finding a job,” he said. The legislation would also raise the credit rate for all families – to 50 percent for those with the lowest-incomes, phasing down to 35 percent for those with higher incomes.

The PACE Act is actually a combination of separate pieces of legislation introduced individually by the two senators: King’s Access to Childcare Expansion Act, and Burr’s Child and Dependent Care FSA Enhancement Act. “When I was looking for a partner on the CDCTC, it made perfect sense that we combine our efforts into one bipartisan bill,” said King.

Burr’s contributions to the combined bill would reform dependent care FSAs. The law would increase the cap on pre-tax dollars families are allowed to put into these accounts from $5,000 to $7,500. The cap would also be indexed to inflation.

King believes these updates to the CDCTC and FSAs would enhance the purchasing power of working parents, and give hope to those who are struggling the most with oppressive childcare costs. Said King: “The financial pressure that these rising costs create is felt even more by those who earn low wages, with those families spending on average more than 30 percent of their income on childcare. That’s not only bad for them, but it’s also bad for the economy. We simply can’t get people to work if they can’t afford childcare, and we can’t expect the economy to grow if people aren’t able to work.”

Efforts to provide relief for low-income families through the tax code remain one of the few areas of agreement across party lines. Yet movement on any legislation these days is rare given the ongoing logjam in Congress. Still, King has a positive outlook for the PACE Act: “I am hopeful that together we will be able to convince our colleagues of the need to make sure that our childcare tax policies remain relevant and up-to-date.”

King noted that he has also co-sponsored Senator Sherrod Brown’s Working Families Tax Relief Act, which would update the tax code to better support low-income workers, including those don’t have dependent children. “I will continue to look for every opportunity to advance pro-work tax policies so that we can support working families in Maine and across the country,” said King.