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«OVERTAXING THE WORKING FAMILY: UNCLE SAM AND THE CHILDCARE SQUEEZE Shannon Weeks McCormack* Today, many working parents are caught in a “childcare ...»

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OVERTAXING THE WORKING FAMILY:

UNCLE SAM AND THE CHILDCARE SQUEEZE

Shannon Weeks McCormack*

Today, many working parents are caught in a “childcare squeeze”: while they

require two incomes just to make ends meet, they end up spending a strikingly

large percentage of their income on childcare so that they can work outside the

home. Worse still, some parents find themselves “squeezed out” of the market entirely, unable to earn the additional income their families require because they cannot find jobs that pay enough to offset soaring childcare expenses.

This Article argues that the tax laws have played an important role in aggravating these hardships. Currently, the Internal Revenue Code treats the childcare costs incurred by working parents as personal expenses, subject to various dollar limitations, percentage limits, and phaseouts. Once these limitations are applied, working parents will receive tax relief for only a small fraction of the childcare costs they actually incur. This Article shows that this is inappropriate as a matter of fundamental tax policy and results in the overtaxation of the working family. It then provides a blueprint for meaningful reform that would properly treat working childcare costs like other costs of earning income and keep the tax laws from worsening the working family’s economic plight.

Table of Contents Introduction..................................................... 560 I. Current Law: The Limited Tax Relief Provided to Working Families......................................... 564 A. Tax Relief for Nonworking Childcare Expenses............. 565 B. Tax Relief for Working Childcare Expenses................. 568 C. The Reality Faced by Working Families: What Is the Effect (or Lack Thereof) of the Working Childcare Provisions?..... 572 II. Fundamental Tax Policies: For What Expenses Should Tax Relief Be Granted?................................... 577 A. Unnecessary Adjustments: Tax Reductions for Consumptive Expenses................................................ 578 B. Necessary Adjustments: Tax Reductions for Nonconsumptive Expenditures............................................ 579 C. Hybrid Expenses......................................... 581 III. Analyzing the Working Childcare Expense.............. 582 * Associate Professor of Law (with tenure), Jack MacDonald Distinguished Scholar 2015–16, University of Washington School of Law. Thank you to Professors Thomas Cobb, Sanne Knudsen, Lisa Manheim, and Kathryn Watts, and the participants of the tax section at the Annual Meeting of the Law and Society Association, Seattle, Washington 2015 for thoughtful comments. Thanks also to Mary Whisner in the Gallagher Law Library and to Talia Butler for their research assistance.

560 Michigan Law Review [Vol. 114:559

–  –  –

The economic plight of the working family is worsening. This cry has been made in the recent campaign speeches of many political candidates,1 by lawmakers on both sides of the aisle,2 and by the President of the United

1. See, e.g., Laurel Elder & Steven Greene, Politicians Love to Talk About Families. But Maybe Not Yours., Wash. Post (Sept. 7, 2012), http://www.washingtonpost.com/opinions/ politicians-love-to-talk-about-family-but-maybe-not-yours/2012/09/07/0be2edea-f218-11e1-a dc6-87dfa8eff430_story.html [http://perma.cc/79KS-6KVN] (“Odes to families—their values, their struggles to make ends meet, their efforts to protect their children—have been broadcast in nearly every political campaign in recent times. Mitt Romney, in his speech accepting the Republican nomination last month, made the promise ‘to help you and your family’ his central message. Obama, in his convention speech, argued that this election will have a huge impact ‘on our children’s lives for decades.’ And at both conventions combined, ‘families’ was the fourth-most-mentioned word or phrase, right behind ‘jobs,’ ‘Romney’ and ‘Obama.’ ”).

2. See, e.g., Lauren French & John Bresnahan, House Democrats Outline Agenda, Politico (July 16, 2014, 11:28 AM), http://www.politico.com/story/2014/07/house-democrats-100day-action-plan-nancy-pelosi-108985.html [http://perma.cc/Y7Z3-APP7] (discussing the “100-day action plan” meant to help the middle class and working families that House Democrats recently released); see also Working Families Flexibility Act of 2013, H.R. 1406, 113th Cong. (2013) (describing the Working Families Flexibility Act, introduced by Republican Congresswoman Martha Roby, which has passed the U.S. House of Representatives and, as its name suggests, is meant to provide help to the working family).

Uncle Sam and the Childcare Squeeze 561 February 2016] States in more than one State of the Union Address.3 The White House recently hosted a daylong summit devoted to the struggles today’s working families face,4 which are also chronicled in books,5 op-ed pieces,6 and proposals for legislative reform.7 And current data that confirm there are good reasons to be concerned about the working family’s continuing ability to “make ends meet,”8 let alone thrive.9 Childcare expenses represent one of the highest household costs incurred by young families in the United States.10 Moreover, although middleSee President Barack Obama, State of the Union Address (Jan. 20, 2015), http://www.whitehouse.gov/the-press-office/2015/01/20/remarks-president-state-union-address-januaryhttp://perma.cc/QW43-F7U4] (“So what does middle-class economics require in our time? First, middle-class economics means helping working families feel more secure in a world of constant change. That means helping folks afford childcare, college, health care, a home, retirement.”); see also President Barack Obama, State of the Union Address (Jan. 28, 2014), http://www.whitehouse.gov/the-press-office/2014/01/28/president-barack-obamasstate-union-address [http://perma.cc/5VQJ-PVMB] (“Over more than three decades, even before the Great Recession hit, massive shifts in technology and global competition had eliminated a lot of good, middle-class jobs, and weakened the economic foundations that families depend on.”).





4. On June 23, 2014, the White House, the Department of Labor (DOL) and the Center for American Progress (CAP), hosted a summit with a special focus on women and their families. White House Summit on Working Families, http://workingfamiliessummit.org [http://perma.cc/T3A8-HTSA].

5. See, e.g., Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap:

Why Middle-Class Mothers and Fathers Are Going Broke (2003) (explaining the economic hardships faced by dual-earner couples).

6. See, e.g., Jillian Berman, When Being a Stay-at-Home Mom Isn’t a Choice, Huffington Post (June 30, 2014, 7:32 AM), http://www.huffingtonpost.com/2014/06/30/stay-athome-moms_n_5537503.html [http://perma.cc/73Z4-9G7X]; Belinda Luscombe, Most Stay at Home Dads Not There by Choice, Time (June 5, 2014), http://time.com/2827314/most-stay-athome-dads-not-there-by-choice/ [http://perma.cc/9QEX-XPFD]; Judith Warner, The Opt-Out Generation Wants Back In, N.Y. Times (Aug. 7, 2013), http://www.nytimes.com/2013/08/11/ magazine/the-opt-out-generation-wants-back-in.html [http://perma.cc/YCC8-K7CB].

7. Notably, on February 2, 2015, President Barack Obama released his budget for fiscal year 2016, asking Congress to help him “bring middle-class economics into the 21st Century,” and explaining that “middle-class economics means helping working families afford the cornerstones of economic security: child care, college, health care, a home, and retirement.” President Barack Obama, The Budget Message of the President (Feb. 2, 2015), http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/message.pdf [http://perma.cc/ B9ZJ-C8P4]. Additionally, Democratic Senator Kirsten Gillibrand has discussed tax reform as part of her overall agenda to make childcare more affordable to parents. See Making Childcare Affordable and Available, Kirsten Gillibrand, http://www.gillibrand.senate.gov/agenda/making-childcare-affordable-and-available [http://perma.cc/9T7M-4V9S].

8. White House Summit on Working Families, supra note 4 (“Too many working Americans—both women and men—are living paycheck to paycheck, struggling to make ends meet and respond to the competing demands of work and family.”).

9. See, e.g., Sarah Jane Glynn, The New Breadwinners: 2010 Update, Ctr. for Am. Progress (Apr. 16, 2012), http://www.americanprogress.org/issues/labor/report/2012/04/16/113 77/the-new-breadwinners-2010-update/ [http://perma.cc/45MP-D847] (discussing post-recession income statistics of the working family).

10. ChildCare Aware of Am., Parents and the High Cost of Childcare 20–23 (2014), http://www.usa.childcareaware.org/advocacy/reports-research/costofcare/ [http://per 562 Michigan Law Review [Vol. 114:559 class income levels have been declining for well over a decade,11 the costs of childcare have consistently climbed.12 Today, most two-parent families consist of two earners and require at least two incomes to meet their needs.13 The pressure to find work is even greater for single parents, who may bear the primary responsibilities of generating income and caring for their children alone. But parents lucky enough to find themselves employed will also find themselves in the “childcare squeeze,”14 spending a strikingly large percentage of their income on childcare to work outside the home.15 Worse still, ma.cc/8F67-D47N]; see also Tara Siegel Bernard, Choosing Child Care When You Go Back to Work, N.Y. Times (Nov. 22, 2013), http://www.nytimes.com/2013/11/23/your-money/choosing-child-care-when-you-go-back-to-work.html [http://perma.cc/6J67-G5WK].

11. Keith Miller & David Madland, What the New Census Data Show About the Continuing Struggles of the Middle Class, Ctr. for Am. Progress (Sept. 16, 2014), https://www.americanprogress.org/issues/economy/news/2014/09/16/97203/what-the-new-census-data-showabout-the-continuing-struggles-of-the-middle-class/ [http://perma.cc/36ED-B7DN]; Rome Neal, Broke on Two Incomes, CBS News (Sept. 9, 2003, 9:15 PM), http://www.cbsnews.com/ news/broke-on-two-incomes/ [http://perma.cc/2FRQ-V4J6]; Alicia Parlapiano et al., The Shrinking American Middle Class, N.Y. Times (Jan. 26, 2015), http://www.nytimes.com/interactive/2015/01/25/upshot/shrinking-middle-class.html [http://perma.cc/ACK6-K4PX]; Dionne Searcey & Robert Gebeloff, Middle Class Shrinks Further as More Fall Out Instead of Climbing Up, N.Y. Times (Jan. 25, 2015), http://www.nytimes.com/2015/01/26/business/economy/middle-class-shrinks-further-as-more-fall-out-instead-of-climbing-up.html [http://perma.cc/ A9Tp-DEPH].

12. See Bradford Plumer, The Two-Income Trap, Mother Jones (Nov. 8, 2004, 4:00 AM), http://www.motherjones.com/politics/2004/11/two-income-trap [http://perma.cc/796DVMDE] (discussing Warren & Tyagi, supra note 5) (“Two-income families are almost always worse off than their single-income counterparts were a generation ago, even though they pull in 75 percent more in income. The problem is that so many fixed costs are rising—health care, child care, finding a good home—that two-income families today actually have less discretionary money left over than those single-earner families did.”).

13. See D’Vera Cohn et al., Pew Research Ctr., After Decades of Decline, a Rise in Stay-at-Home Mothers 5 (2014), http://www.pewsocialtrends.org/files/2014/04/MomsAt-Home_04-08-2014.pdf [http://perma.cc/4YD5-UZGC] (“The share of mothers who do not work outside the home rose to 29% in 2012, up from a modern-era low of 23% in 1999, according to a new Pew Research Center analysis of government data.”); see also Glynn, supra note 9 (“[M]ost children today are growing up in families without a full-time, stay-at-home caregiver. In 2010, among families with children, nearly half (44.8 percent) were headed by two working parents and another one in four (26.1 percent) were headed by a single parent. As a result, fewer than one in three (28.7 percent) children now have a stay-at-home parent, compared to more than half (52.6 percent) in 1975, only a generation ago.”).

14. See Carol Morello & Scott Clement, “Happy Days” No More: Middle-Class Families Squeezed as Expenses Soar, Wages Stall, Wash. Post (Apr. 26, 2014), http://www.washingtonpost.com/local/happy-days-no-more-middle-class-families-squeezed-as-expenses-soarwages-stall/2014/04/26/f4a857f0-7a47-11e3-b1c5-739e63e9c9a7_story.html [http://perma.cc/ 4WRL-Z2WK]; David Riley, Many Families Caught in Child Care Squeeze, Democrat & Chron. (Aug. 11, 2014, 11:35 AM), http://www.democratandchronicle.com/story/news/2014/ 08/09/childcare-monroe-county-elaine-spaull/13780719/ [http://perma.cc/HYD9-ZF9J]; Melissa Schorr, The Day Care Squeeze: How Families Cope in the Highest-Priced Child-Care Market in the Nation, Boston.com (Dec. 12, 2010), http://www.boston.com/lifestyle/articles/2010/12/ 12/the_day_care_squeeze/ [http://perma.cc/9GZM-BGU2].

15. See Childcare Aware of Am., supra note 10, at 20–23 (showing childcare as one of the highest costs in a family’s budget).



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