The One Flaw in Ivanka Trump's Child Care Plan

March 2nd 2017

Mike Rothschild

As part of her role in her father's administration, Ivanka Trump has positioned herself as an advocate for families — pushing for paid family leave and affordable child care.

She previously met with members of Congress and urged them to include tax deductions, which allow people to reduce their taxable income for a year, for child care in their upcoming tax reform negotiations. However, critics of the draft proposal for her child care tax plan, including industry groups and media figures, believe the plan differs little from the one President Donald Trump has already proposed. And that plan offers the majority of its benefits to families with six-figure incomes, netting working-class families almost nothing.

The cost of care for a child under five can run as much as $10,000 a year — while American median incomes hover around $55,000 for a family. This creates a constant struggle for middle class parents and makes full-time care totally out of reach for those on minimum wage.

The President's plan seeks to subsidize families via year-end tax deductions, rather than lower the actual cost of child care. According to a detailed analysis by Bloomberg and the non-partisan Tax Policy Center, "the broad idea is to let people making less than $250,000 a year ($500,000 for couples) deduct the cost of child care from their taxable income."

In other words, families wouldn't be paying federal income taxes on the money they spent on child care. The deduction would be capped at the average cost of child care for that taxpayer's state, and be limited to four children. It would be paid out only after their annual income taxes are prepared, and provide no help on a week-to-week basis.

The plan favors families who make more money.

To understand why Ivanka's childcare plan would help wealthy families, you first need some context on her father's proposed tax plan.

Under Trump's new system, the multitude of tax brackets currently on the books would be replaced with three. People who make up to $75,000 could only be taxed 12-percent. People who make $225,000 or less could only be taxed at a rate of 25-percent, at most. Anyone who makes more than that could only be taxed at 33-percent. Overall, taxes are going down on the richest Americans.

So, imagine you are making $300,000 per year. Under Trump's tax plan, you would be able to deduct up to the average cost of childcare in your state from your taxable income. If you live in a state where the average cost of childcare is $10,000 per-year, that means you would bring your taxable income down to $290,000. What's the big deal? Well, the difference in taxes between $300,000 of taxable income and $290,000 of taxable income is $3,300. However, because lower income people are generally taxed less, the benefits of a tax deduction arent so great. For example, the difference between $50,000 and $40,000 of taxable income at a 12 percent tax rate is only $1,200.

So for those who already pay a much larger share of their income toward child care, the plan only offers a miniscule subsidy long after the expenses are paid.

How low is it? The Tax Policy Center found that families who take home less than $40,000 after taxes will see an increase in income of 0.1 percent — taking home as little as $20 extra when they prepare their taxes. And the study is even more stark for those who make less, noting that "[f]amilies with incomes between $10,000 and $30,000 would receive average annual benefits of just $10" on a potential refund.

Meanwhile, families bringing home $100,000 to $200,000 would see a much higher increase in untaxed income — as much as 0.3 percent. This could potentially net them thousands of dollars when their income taxes are paid.

For the nearly half of all Americans who earn too little to owe income taxes there is also some relief, but not much. While the details of Trump's current child care plan has yet to take shape, the overall tax plan he has previously touted gives these families a tax rebate that is "equal to 7.65 percent of [...] eligible childcare expenses" and capped at half of the payroll taxes paid by the lower wage earner. For a family on minimum wage, this rebate could net them just a few hundred dollars at tax time — which is of little help in paying the staggering costs of care.