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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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91. Id.; see also Joan C. Williams, Work Life Law, UC Hastings Coll. of the Law, One Sick Child Away from Being Fired: When “Opting Out” Is Not an Option 12 (2006) http://www.worklifelaw.org/pubs/onesickchild.pdf [http://perma.cc/NT2K-4USY] (“Routine childhood illness is a major concern.”).

92. See Williams, supra note 91, at 12–13.

93. Id. at 3, 5.

94. I.R.C. § 21(a)(2) (2012).

95. See supra notes 76–81 and accompanying text.

96. See I.R.C. § 21(a)(2).

576 Michigan Law Review [Vol. 114:559 childcare center is $39,252,97 let alone the cost of an individual caretaker, which may be even higher.98 The situation should be taken seriously. As noted in the Introduction, most two-parent families are made up of two earners and require at least two incomes.99 Single parents face even greater pressure to find work to adequately care for their children. And, although middle-class incomes have generally decreased in recent decades,100 the costs of childcare have steadily risen.101 As a result, many working parents are in a “childcare squeeze,” spending a significant portion of their earnings on childcare to simply make it possible for them to work.102 Even worse, recent data suggest that more parents are finding themselves “squeezed out” of the market completely because they cannot find jobs that pay enough to offset soaring childcare expenses. According to a study conducted by the Pew Research Center, the percentage of stay-at-home mothers started to decline in the mid-1960s and continued to do so until it reached an all-time low of 23 percent in 1999.103 But the percentage of stay-at-home mothers started to rise in 1999 and has climbed ever since, representing a “reversal of a long-term decline in ‘stay-at-home’ mothers that had persisted for the last three decades of the 20th century.”104 Unfortunately, many of these parents are not staying home by choice,105 but because they have found that potential wages would barely cover childcare costs.106

97. ChildCare Aware of Am., supra note 10, apps. 2–3.

98. See supra notes 85–87 and accompanying text.

99. See Glynn, supra note 9, at 2 (“[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.”); Neal, supra note 11.

100. See Parlapiano et al., supra note 11.

101. See, Plumer, supra, note 12 (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.”).

102. While the average family spends approximately 18 percent of its income on childcare costs, families with young children will almost surely spend far more. See infra Part III; see also Bernard, supra note 10; Morello & Clement, supra note 14; Riley, supra note 14; Schorr, supra note 14.

103. Cohn et al., supra note 13, at 5.

104. Id.

105. See id. at 6 (“A growing share of stay-at-home mothers (6% in 2012, compared with 1% in 2000) say they are home with their children because they cannot find a job. With incomes stagnant in recent years for all but the college-educated, less educated workers in particular may weigh the cost of child care against wages and decide it makes more economic sense to stay home.”).

106. See Berman, supra note 6 (“Chelsea Belander, 22 and single, lives at her mother’s house rent free with her one-year-old son, Finn. Belander doesn’t have any income besides the child support payments she receives from Finn’s dad and cash she earns from doing small jobs Uncle Sam and the Childcare Squeeze 577 February 2016] It is important to recognize not only the short-term but also the longterm effects of “squeezing” a parent out of work. While it might be tempting (and comforting) to believe that a parent’s job opportunities will be revitalized once her children reach school age, even small gaps in one’s resume can make an already challenging job market even harder to conquer.107 A parent “squeezed” out of the job market may find herself out for good.

Disturbing as these trends are, not all problems are for the Internal Revenue Code to solve. Just because childcare is expensive does not mean that the tax system should allow taxpayers to reduce their taxable income to reflect those costs. If a taxpayer purchases a Mercedes-Benz every year, the cost of the vehicle may eat up a great deal of her income, causing her great financial stress.108 This does not mean that the Code should—in fact, it unequivocally should not—allow her to reduce her taxable income to reflect these costs. To determine whether and to what extent the current tax relief §§ 21 and 129 provide is inadequate, one needs to understand certain basic principles of tax law, specifically those guiding the decision to grant or deny taxpayers relief—that is, deductions, percentage credits, or exclusions—for certain expenses. Once introduced, this Article will apply these general principles to show that parents should receive tax relief for a far more significant portion of working childcare expenses than current laws provide.





II. Fundamental Tax Policies: For What Expenses Should Tax Relief Be Granted?

The ultimate goal of any tax regime is to accurately measure a taxpayer’s tax liability, which requires the accurate measurement of taxable income (that is, the base amount on which tax is levied). In order to do so, the Internal Revenue Code must allow taxpayers to make adjustments for certain costs. For instance, an income tax must allow taxpayers to deduct the costs of earning income.109 These adjustments are sacrosanct in the tax law like mowing the lawn. But she’s calculated that the $8 to $10 an hour she’d make at the jobs available in her town of Brunswick, Maine, would barely cover the cost of child care, which runs $250 per week for a half day. ‘That seems stupid to me,’ Belander said of working just to pay for day care.”).

107. See Warner, supra note 6 (“Eighty-nine percent of those who ‘off-ramped’... said they wanted to resume work; but only 73 percent of these succeeded in getting back in, and only 40 percent got full-time jobs.”).

108. And this may be about what it costs to provide annual full-time care for one’s children while working. Cf. Schorr, supra note 14 (“One mom friend who has returned to a fulltime job in finance confides she’s paying her nanny an annual salary of, oh, roughly the price of a 2010 Mercedes SUV.”).

109. See Stanley S. Surrey, Tax Incentives as a Device for Implementing Government Policy:

A Comparison with Direct Government Expenditures, 83 Harv. L. Rev. 705, 724 (1970) (“An income tax is a tax on net income and not a tax on gross receipts; therefore the deductions from gross income required to produce the net income base must be allowed. Those deductions, generally speaking, are the expenses and costs incurred in the process of producing or earning the gross income received by the taxpayer.”).

578 Michigan Law Review [Vol. 114:559 and limiting them would compromise the accurate calculation of net income,110 the tax base the United States seeks (and has always sought) to tax.111 By contrast, an income tax should not provide tax relief for the costs of consuming goods and services.112 While certain provisions of the Code allow taxpayers to deduct or credit designated consumptive expenditures, these sections seek to accomplish a series of nontax objectives. For instance, the Code allows a taxpayer to deduct interest associated with her home mortgage, not to calculate properly the taxpayer’s liability but to encourage homeownership. Congress could, therefore, limit or repeal these provisions at any time without undermining the proper measurement of the income tax base. Somewhere between these two extremes are costs for activities that have both consumptive and nonconsumptive elements. Congress may limit the relief these provisions provide but must be wary of the extent to which it does so, as overly stringent limitations might frustrate the tax-related goals of these provisions, leading to unfairness. Section II.A describes purely consumptive expenses, for which no tax relief is warranted. Section II.B describes purely nonconsumptive expenses, for which full tax relief is necessary. Section II.C turns to hybrid expenses—expenses that have both consumptive and nonconsumptive aspects—noting that working childcare expenses will likely fall within this final categorization.

A. Unnecessary Adjustments: Tax Reductions for Consumptive Expenses

A theoretically pure income tax should not allow taxpayers to deduct (or credit) the costs of consuming goods and services.113 For instance, a taxpayer does not need to deduct (or receive any tax relief to reflect) the costs of purchasing toys for his children in order to accurately calculate his net income. These expenses are purely consumptive and there is, therefore, no

110. See id.

111. E.g., Bank of Am. Nat’l Trust & Savings Ass’n v. United States, 459 F.2d 513, 518 (Ct.

Cl. 1972) (“[F]rom 1913 on, Congress has always directed the domestic levy at some net gain or profit....”).

112. This tenet derives from the Haig-Simons definition of income, which generally provides that income is the sum of one’s consumption (for example, costs of purchasing goods for personal enjoyment) and accumulation (for example, savings). See Robert Murray Haig, The Concept of Income, in The Federal Income Tax 7 (Robert Murray Haig ed. 1921), reprinted in Richard A. Musgrave & Carl S. Shoup, Am. Econ. Ass’n, Readings in the Economics of Taxation 54 (1959) (arguing that income is consumption plus accumulation); see also, e.g., William D. Andrews, Personal Deductions in an Ideal Income Tax, 86 Harv. L. Rev. 309, 330 (1972) (“The adjustments by which taxable income can be made to give a more refined reflection of aggregate personal consumption and accumulation may be positive or negative. If a substantial item of personal consumption is enjoyed without any cash expenditure, then the appropriate adjustment is to add the value of that item to money income. On the other hand, if the concept of consumption is elaborated in a way that does not include some items for which money is spent, then the appropriate adjustment is to deduct the amount of those expenditures from money income.”); Boris I. Bittker, A “Comprehensive Tax Base” as a Goal of Income Tax Reform, 80 Harv. L. Rev. 925, 929 (1967).

113. See sources cited supra note 112.

Uncle Sam and the Childcare Squeeze 579 February 2016] tax-related reason why a taxpayer should be able to reduce his tax liability to reflect them. The taxpayer in this hypothetical is not truly poorer by the amount of the expense—he has simply transformed cash into goods (here, toys) that benefit his household at least as much as the cost incurred. If the benefit were not this great, the taxpayer would not have purchased the toys, as his choice to do so was all his own.

As a default matter, Internal Revenue Code § 262 disallows deductions for “personal, living, or family expenses.”114 Section 262’s rule may be reasonably viewed as one that uses personal, living, and family expenditures as a proxy for consumptive expenses. Put another way, § 262 reflects that most personal, living, and family expenses are consumptive. Accordingly, in addition to disallowing a deduction for expenses associated with purchasing toys for his children, § 262 ensures that a taxpayer may not (absent a statutory exception) deduct the costs of purchasing other items for his family and children, such as food and clothing.115 Furthermore, a taxpayer may not deduct the costs of “babysitters” hired to alleviate him of childcare responsibilities that are not associated with his work—for example, babysitters hired for personal engagements, date nights with his spouse or partner, or perhaps sorely needed breaks from childrearing.116 Again, this disallowance makes sense, as the taxpayer’s wealth has not been decreased as a result of this expense. Instead, he has used cash to purchase babysitting services that he must have thought were worth at least the cost incurred; otherwise, he would not have made the exchange.

As discussed in Part I, the tax law currently allows some limited relief for these nonworking childcare expenses in §§ 154 and 21. But these are exceptions Congress has grafted—they are a matter of “legislative grace”117—and Congress could curtail or repeal them entirely without compromising the accurate calculation of a taxpayer’s net income. By contrast, the Code must make adjustments for nonconsumptive costs in order to properly compute a taxpayer’s net profit.118

–  –  –

Since its inception, the U.S. system of taxation has aimed to tax net income—that is, a taxpayer’s profits.119 Thus, if a taxpayer were to purchase

114. I.R.C. § 262(a) (2012) (“Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses.”).

115. See id.

116. See id.

117. Cf. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934) (“Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed.”).

118. See Surrey, supra note 109; supra text accompanying note 109.

119. E.g., Bank of Am. Nat’l Trust & Savings Ass’n v. United States, 459 F.2d 513, 518 (Ct.



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