Association for Public Policy Analysis & Management

For lower-income families with young children and with employed parents, child care subsidies can act as a critical work support and may increase the family’s options for high-quality care arrangements.  However, child care subsidies are not an entitlement for U.S. families.  Many policymakers have proposed expanded or guaranteed access; the specifics of such an expansion would determine the number of families affected and the government cost.  This research uses microsimulation modeling to estimate those impacts.  We consider the impacts at the national and state levels, and with varying eligibility limits and family payment requirements.

Currently, even if a family is eligible for subsidized child care under their state’s policies, and the family wants to obtain subsidized care, a subsidy may not be available.  The federal program that funds most child care subsidies—the Child Care and Development Fund (CCDF)—is a block grant, and states must keep their costs within the available funding through their policy choices.  For example, while federal law allows states to serve families with income as high as 85 percent of state median income, most states set much lower limits.  Even with those lower limits, less than a third of children eligible under their state’s CCDF policies receive a subsidy either from CCDF or other federal funding.   Expanded access to child care subsidies has been proposed by many policymakers, and the administration recently proposed expansions focused on younger children. 

This paper examines the potential impacts of a guarantee of child care subsidies.  The guarantee is assessed with varied rules for eligibility limits, copayment requirements, and take-up rates.  The results are analyzed in terms of the impacts on families—numbers of eligible families, estimated families receiving subsidies, change in out-of-pocket child care expenses, and change in overall family income and poverty level—and impacts on government costs.  Potential impacts on labor supply are also examined.   For example, guaranteed access to subsidies for families with income below 150 percent of poverty is estimated to increase the number of families with subsidies by over 60 percent if no labor supply increase is assumed, or by almost 100 percent if labor supply increases are incorporated.  Results are considered by family characteristics, and across regions and states.  For example, guaranteed access to families under 150 percent of poverty reduces child poverty by 3 percent overall, but by 5 percent in the Midwest.

The analysis uses the TRIM3 microsimulation model, a comprehensive model of benefit and tax programs affecting U.S. families, developed and maintained at the Urban Institute. The primary version of TRIM3 uses data from the Current Population Survey (CPS) and is funded by the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (HHS/ASPE); other sources have funded a version that uses the American Community Survey (ACS).  This paper builds on and augments work conducted by the authors for the Center for American Progress, Children’s Defense Fund, and state poverty commissions, using both the CPS and ACS data.