The Role of Child Care Small Businesses in Supporting Parents and the American Workforce — Rachel Greszler, U.S. Senate (April 10, 2024)

Summary

Written testimony of Rachel Greszler, Senior Research Fellow in Workforce and Public Finance at The Heritage Foundation, before the U.S. Senate Committee on Small Business and Entrepreneurship on April 10, 2024, titled The Role of Child Care Small Businesses in Supporting Parents and the American Workforce. The testimony states the views are her own. It reports that parents' employment stands at 80.3 percent and that employment of childcare workers declined by 11.4 percent between 2019 and 2023. It cites surveys on parents' childcare preferences, reports a 42 percent drop in in-home childcare providers between 2005 and 2017, and argues that licensing requirements contribute to that decline. It criticizes the childcare entitlement proposed in the 2021 Build Back Better Act and closes with recommendations to expand childcare options and a note on The Heritage Foundation's funding.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

                     The Role of Child Care Small Businesses in
                   Supporting Parents and the American Workforce

                                        Testimony before the

                      Committee on Small Business and Entrepreneurship

                                              U.S. Senate

                                            April 10, 2024

                                        Rachel Greszler
                     Senior Research Fellow in Workforce and Public Finance
                                    The Heritage Foundation


My name is Rachel Greszler. I am the Senior Research Fellow in Workforce and Public Finance at
The Heritage Foundation. The views I express in this testimony are my own and should not be
construed as representing any official position of The Heritage Foundation.

As a working mother of six kids, the youngest of whom just started kindergarten this past year, I
have been navigating childcare for the past 15 years. Instead of having all the answers, however, I
have learned that childcare is complex; while there are things that can help families, there is no silver
bullet solution. I have also learned that different families have different childcare preferences and
needs, and even within families, preferences and needs can vary as work and family circumstances
change over time. What is most important is that families are free to pursue what is best for them.

In my testimony today, I would like to: (1) discuss the current landscape for parents, children, and
childcare providers; (2) consider the government’s potential role in families’ unique childcare
preferences; and (3) suggest ways that policymakers can help to expand childcare options so that
more families can achieve the childcare they desire.

The Current Environment for Working Families

While in a significant share of families with young children one parent stays home with the kids,
in the majority of families, both parents are, or the only parent is, working. Parents’ employment,
currently at 80.3 percent, is roughly on par with total prime-working-age (25 to 54) employment
of 80.7 percent.1 While not all employed parents work full-time and while some have older
children who do not need childcare, high employment rates among parents mean that many
parents must navigate formal or informal childcare arrangements.

Parents’ Employment Has Increased Since the Pandemic. Despite the struggles that parents
faced with childcare and school closures, and counter to the media narrative that many mothers
were forced to drop out of the workforce, parents’—and particularly mothers’—employment has
increased since the COVID-19 pandemic. While overall employment (as measured by
employment-to-population ratios) is down by 1.6 percent since the start of the pandemic, parents’
employment has increased 0.7 percent.2




1
  The total employment rate for the age 16+ population is 60.1 percent (February 2024). Sources include both
published and unpublished data from the Bureau of Labor Statistics’ Current Population Survey. Published data
available for download at https://www.bls.gov/data/home.htm.
2
  Employment among workers without children ages 17 and younger at home is down by 2.1 percent (February 2019
to February 2024). Data based on author’s calculations of unpublished data from the Bureau of Labor Statistics
Current Population Survey. For full documentation, see Rachel Greszler, “What Is Happening in This
Unprecedented U.S. Labor Market? April 2023 Update,” Heritage Foundation Backgrounder No. 3764, April 27,
2023, https://www.heritage.org/jobs-and-labor/report/what-happening-unprecedented-us-labor-market-april-2023-
update.




                                                                                                             2
Particularly surprising is the fact that employment among women with children under age six is
up by 3.0 percent since the start of the pandemic, which is nearly 10 times as large as the gains of
any other demographic group, and compares to declines in employment among most demographic
groups, including a 2.1 percent decline in employment among workers without children.

Despite the increase in employment among women (and men) with young children, employment
of childcare workers declined by 11.4 percent between 2019 and 2023.3 These two realities would
seem to contradict one another—more women working would typically be associated with more
workers providing childcare. A potential reckoning of these otherwise conflicting realities may be
attributed to increased workplace flexibility and remote work along with some people moving
closer to family resulting in a shift toward more home-based and family-provided childcare.

Most Parents Prefer Care by—and Most Kids Are Cared for by—Family Members. A 2021
survey by the Institute for Family Studies asked parents of children under age five about their ideal
work and childcare preferences. The most common preference—representing 31 percent of
parents—is for parents to work flexible hours and share childcare duties. Subsequent preferences
included: 28 percent prefer one parent to stay home full time to care for children; 14 percent prefer
that a relative cares for children; 14 percent prefer that one parent stays home part time while using
part-time childcare; 11 percent prefer using full-time center-based childcare; and 4 percent prefer
that a nanny cares for children. In total, fully 73 percent of parents said they prefer exclusively
parental or relative care and only 15 percent prefer full-time non-relative childcare.4




3
  Employment among childcare workers was down 11.4 percent, though employment among childcare and preschool
administrators was up 22.4 percent. In total, childcare employment was down 8.5 percent between 2019 and 2023.
Bureau of Labor Statistics, “Occupational Employment and Wage Statistics,” data from May 2019 and May 2023,
https://www.bls.gov/oes/current/oessrcst.htm (accessed April 4, 2024).
4
  Wendy Wang and Jenet Erickson, “Homeward Bound: The Work–Family Reset in Post-COVID America,” Institute
for Family Studies Research Brief, August 2021, https://ifstudies.org/ifs-admin/resources/final-ifsparentsreport.pdf
(accessed March 28, 2024).




                                                                                                                  3
That 2021 survey of parents with young children accords relatively well with a much larger Census
Bureau Household Pulse Survey of all parents. According to the most recent Census survey, only
39 percent of parents who live with at least one child aged 17 or younger have formal childcare
arrangements. 5 Parents with younger kids are far more likely to have formal childcare
arrangements, including 65 percent of parents with kids under age five, 46 percent of parents with
kids ages five to 11, and only 13 percent of parents with kids ages 12 to 17.6

Of the 39 percent of who have formal childcare arrangements, 22 percent have a relative caring
for their children. About 8 percent use center-based childcare; 5 percent use a non-relative
individual (such as a nanny or babysitter); 5 percent use before care, aftercare, or summer camp;
5 percent use preschool; 3 percent use a family daycare provider; and 1 percent use Head Start.

Among parents with kids under age five, 35 percent report using no formal childcare; 32 percent
have a relative caring for their children; 23 percent use center-based childcare; 14 percent use
preschool; 9 percent have non-relative care; 5 percent use a family daycare; 2 percent use before
care, aftercare, or summer camp; and 1 percent use Head Start.


5Casey Eggleston, Yeris H. Mayol Garcia, Mikelyn Meyers, and Yazmin Garcia Trejo, “Most Parents Don’t Have

Any Formal Childcare Arrangements,” U.S. Census Bureau, November 29, 2023,
https://www.census.gov/library/stories/2023/11/child-care.html (accessed March 28, 2024).
6
  For parents with multiple-age kids, 50 percent reported having a formal childcare arrangement. Ibid.




                                                                                                         4
With roughly two-thirds of families using non-center-based childcare, the Bipartisan Policy Center
conducted a 2022 survey of parents who use informal childcare, which the center defines care from
a parent, relative, friend, neighbor, or nanny.7 Nearly two out of three parents (62 percent) who
use informal childcare say that formal childcare is unappealing to them, and a little more than one
out of three parents (38 percent) say that formal childcare is inaccessible.8 Overwhelmingly, 93
percent of parents who use informal childcare are satisfied with their childcare arrangements.
Parents who use informal care say that safety, trust, and flexibility are their greatest concerns, and
among the main reaons they choose informal childcare. Notably, even if formal childcare was free
and convenient, more than half of parents (57 percent) would still prefer their informal childcare
arrangements.9

Dwindling Supply Is Major Source of Childcare Struggles

Perhaps even more significant of a struggle than the cost of childcare for families is the dwindling
supply of childcare. The same 2022 survey by the Bipartisan Policy Center found that roughly 55
percent of parents say that childcare is very or somewhat limited.10 In particular, family-provided
or in-home childcare has declined precipitously over the past two decades. Between 2005 and



7
  Bipartisan Policy Center, “Understanding Employed Parents Using Informal Child Care,” June 2022,
https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2022/08/BPC_One-Third_June-2022_Analysis-
002.pdf (accessed March 28, 2024).
8
  Ibid.
9
  Ibid.
10
   Ibid.




                                                                                                            5
2017, the number of in-home childcare providers plummeted 42 percent.11 And more recently,
Childcare Aware estimates that family childcare providers fell another 11 percent between 2019
and 2022.12




Family childcare, or in-home childcare, should—at least conceptually—be widely available as
many parents who stay home with their own children may also have the capacity and desire to care
for other children and earn money at the same time. Similarly, empty-nesters and grandparents
who have experience raising children may be willing and able to care for children in their homes.

11
   National Center on Early Childhood Quality Assurance, “Addressing the Decreasing Number of Family Child
Care Providers in the United States,” revised March 2020,
https://childcareta.acf.hhs.gov/sites/default/files/public/addressing_decreasing_fcc_providers_revised_march2020_fi
nal.pdf (accessed April 4, 2024).
12
   Child Care Aware, “Catalyzing Growth: Using Data to Change Childcare 2022, Annual Childcare Landscape
Analysis,” https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care-
2022/#:~:text=The%20number%20of%20licensed%20centers,pre%2Dpandemic%20levels%20in%202022.
(accessed April 2, 2024).




                                                                                                                 6
The economics of in-home care—with providers using their existing homes—enable roughly 25
percent lower costs, on average, than center-based care. 13 And in-home providers are often more
likely to be able to accommodate part-time childcare needs, such as after-school care.

Excessive licensing requirements and regulations are almost certainly part of the reason for the
decline in in-home childcare. Becoming a licensed provider is not easy: In addition to
implementing potentially costly structural changes to one’s home and undergoing multiple
inspections, regulations also dictate which toys providers can and cannot offer, which types of
beverage can or must be provided at which time intervals, into what size different pieces of food
must be cut, which type of tape can and cannot be used in the classroom, and which types of food
containers must be used and how they must be labeled. A study of Illinois’s licensed in-home
providers found that in addition to providing 51 hours per week of paid childcare, the providers
spent another 18 hours performing unpaid administrative work.14

Even when government funds are available to subsidize the startup or provision of childcare, in-
home childcare providers face greater administrative burdens in applying for government funds
and complying with conditions attached to them. As navigating government regulations and
funding conditions is not easy, individual innovators—as opposed to politicians and bureaucrats—
are already helping to expand options for families. For example, Tootris is an online company that
helps parents to find care, helps childcare providers to economize their administration, and helps
employers to establish childcare benefits for employees.15 And the Carefully app provides a zero-
cost, shared-care option in which parents can “build a family, friends and neighbor network of
parents you know and trust to share care and provide mutual aid.”16

On-site childcare at places of employment can benefit workers and employers alike by limiting
parents’ time spent commuting from childcare to work (and kids’ time away from parents), by
providing peace of mind to parents that their children are nearby (and potentially allowing parents
to visit kids during breaks), and by providing a valuable benefit that helps employers to attract
workers. Yet, the licensing requirements and potential legal liabilities for employers to provide
on-site childcare are a significant barrier. As mentioned in the solutions section below (“Solutions
for More Accessible, Affordable, and Flexible Childcare”), local and state lawmakers should
consider different types or levels of licensing standards, including a set of regulations tailored to
aid in the availability of on-site, employer-sponsored childcare.

Childcare Is Not One-Size-Fits-All



13
   Child Care Aware, “The US and the High Price of Child Care,” 2019, https://www.childcareaware.org/our-
issues/research/the-us-and-the-high-price-of-child-care-2019/ (accessed August 12, 2020). The cost data are for
2018 and pull from “methodology #3” in the report, which uses an “average of program-weighted averages.”
14
   Jordan Norton and Joellyn Whitehead, “Illinois Salary and Staffing Survey of Licensed Child Care Facilities:
Fiscal Year 2019,” Illinois Network of Child Care Resource and Referral Agencies, prepared for the Illinois
Department of Human Services,
https://www.dhs.state.il.us/OneNetLibrary/27897/documents/Child%20Care/FY2019SSS.pdf (accessed April 6,
2024).
15
   Tootris, “About Tootris,” https://tootris.com/edu/about/company/ (accessed April 3, 2024).
16
   Carefully, “What Is Carefully?” https://www.carefullyapp.com/ (accessed April 3, 2024).




                                                                                                                  7
Families have unique desires and needs regarding parents’ work and children’s care, and
communities have unique needs and capabilities for the provision of childcare. Preferences for
childcare arrangements vary across race, education, and income. Only 14 percent of Hispanic
families say that full-time paid childcare is the best arrangement for them, compared to 19 percent
of white parents, 20 percent of Asian parents, and 25 percent of black parents. 17 College graduates
are about twice as likely to prefer full-time paid childcare (27 percent) as non-college grads (14
percent).

The biggest difference in preferences is by income level, with 31 percent of families earning more
than $100,000 per year preferring full-time paid childcare, versus 17 percent for families making
between $50,000 and $99,999, and only 15 percent of families making less than $50,000. In large
part, this difference in preferences across income levels is the result of parents with stronger
preferences for parental care sacrificing more paid labor in order to be home with children.

Proposed National Childcare Entitlement Would Fail to Meet Parents’ Desires. The 2021
Build Back Better Act included a “Birth Through Five Child Care and Early Learning Entitlement”
that would have provided federal grants to states to cover a majority of parents’ costs 18 for
childcare at federally sanctioned childcare providers. Only childcare providers that conformed to
strict federal childcare standards and regulations, and which eventually achieved “top tier” status,
would qualify for the funds.19 In practice, it would be difficult or impossible for relatives, in-home,
and faith-based childcare providers to participate in the proposed federal childcare entitlement.
Faith-based childcare providers, which incorporate a religious ministry component and are often
located in houses of faith, make up about half of all center-based childcare providers.20

The multitude of federally mandated requirements would significantly drive up the cost of care
and limit the availability of non-federally sanctioned childcare. This could shift taxpayer subsidies
away from lower-income families or disadvantaged children and toward affluent families and
advantaged children.21




17
   Wendy Wang, Margarita Mooney Suarez, and Patrick T. Brown, “Familia Sí, Guardería No: Hispanics Least
Likely to Prefer and Use Paid Child Care,” Institute for Family Studies, May 26, 2021,
https://ifstudies.org/blog/familia-si-guarderia-no-hispanics-least-likely-to-prefer-and-use-paid-child-care (accessed
April 6, 2024).
18
   Based on a sliding scale, parents making 75 percent or less of their state’s median income would pay nothing for
childcare, parents making 100 percent of their state’s median income would pay no more than 2 percent of their
income for childcare, and parents making 150 percent or more of their state’s median income would pay no more
than 7 percent of their income for childcare.
19
   Rachel Greszler, “Government Childcare Subsidies: Whom Will They Help Most?” The Heritage Foundation
Issue Brief No. 5231, October 20, 2021, https://www.heritage.org/sites/default/files/2021-10/IB5231.pdf.
20
   A December 2020 survey of working-parent households found that 31 percent used center-based childcare, and 53
percent of those families used centers affiliated with a faith organization. Suzann Morris and Linda K. Smith,
“Examining the Role of Faith-Based Child Care,” Bipartisan Policy Center, May 2020,
https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2021/06/ECI-Faith-Based-Brief_RV2-1-1.pdf
(accessed April 8, 2024).
21
   Ibid.




                                                                                                                    8
Moreover, as the proposed federal childcare entitlement would predominantly subsidize center-
based childcare that is the preference of only 10 percent to 15 percent of parents and which is not
available in rural areas, more parents would struggle to find the care they want or need.
Consequently, children could be pushed into childcare settings that are not their parent’s
preferences. The potential adverse effects of such shifts for children and parents are evident in
subsidized childcare programs in Quebec,22 the U.S.,23 and elsewhere.24

Childcare in Rural America. Center-based childcare is both less accessible and less desirable in
rural areas of America. Economies of scale prevent center-based childcare from being an
affordable option in many rural areas where the demand for care is lower and less consistent.
Moreover, parents in rural areas are more likely to work irregular hours that are outside of typical
center-based care schedules.

Yet, public funding for childcare, namely through the Child Care Development Block Grant
(CCDBG) primarily subsidizes center-based childcare. A 2018 Urban Institute report on childcare
for families in rural areas noted that “many families may be inadvertently disadvantaged by a
subsidy system that focuses primarily on center-based care and it may undercut the core CCDBG



22
   Michael Baker, Jonathan Gruber, and Kevin Milligan, “Universal Childcare, Maternal Labor Supply and Family
Well-Being,” National Bureau of Economic Research Working Paper No. 11832, December 2005,
https://www.nber.org/system/files/working_papers/w11832/w11832.pdf (accessed April 6, 2024).
23
   Chris M. Herbst and Erdal Tekin, “Child Care Subsidies, Maternal Well-Being, and Child-Parent Interactions:
Evidence from Three Nationally Representative Datasets,” National Bureau of Economic Research Working Paper
No. 17774, January 2012, https://www.nber.org/system/files /working_papers/w17774/w17774.pdf (accessed April
6, 2024).
24
   Jonas Himmelstrand, “Swedish Daycare: International Example or Cautionary Tale?” Institute of Marriage and
Family Canada, September 10, 2015, https://www.imfcanada.org/archive/1107/swedish-daycare-international-
example-or-cautionary-tale (accessed April 6, 2024).




                                                                                                                 9
principle of parental choice.”25 In particular, the report found that 3 percent or fewer of low-income
young children with working parents live outside of metropolitan areas in California, Connecticut,
Delaware, the District of Columbia, Maryland, Massachusetts, New Jersey, and Rhode Island. But
more than 40 percent of low-income young children with working parents live in non-metropolitan
areas in Iowa, Maine, Mississippi, Montana, New Hampshire, New Mexico, North Dakota, South
Dakota, Vermont, and Wyoming.26

With center-based childcare generally not practical in rural communities, policymakers should
remove obstacles and barriers that impede existing public childcare funds from reaching in-home
and faith-based providers. Two bipartisan bills co-sponsored by Senator Joni Ernst (R–IA)—the
Expanding Childcare in Rural America (ECRA) Act of 2023 and the Small Business Child Care
Investment Act—would expand access for rural childcare providers to existing public subsidies
and funds. To the extent that these bills simply enable childcare providers to qualify for existing
programs, they could help to expand rural childcare access without imposing new costs or risks on
taxpayers, so long as they incorporate childcare providers into existing programs.

Caution Against Considering Government Childcare an “Investment”

Advocates of universal—that is, government-subsidized—childcare argue that it is an investment
in parents and children because it enables parents to work more—earning more money, paying
more in taxes, and building their careers—and it improves children’s life outcomes.

Argument Ignores Value of Caregiving. Advocates of government-subsidized childcare cite
statistics about the lost wages of parents who drop out of the labor force or who cut back on work
in order to care for children. Thus, they claim, government-subsidized childcare that allows parents
to earn income is an “investment” yielding earnings, tax revenues, and measured economic output.
But that analysis is one-sided because it measures the income, taxes, and output of a woman who
works as a paid childcare provider, yet assumes that the economic impact of a woman who
performs the exact same role caring for her own children is zero. It is inconsistent for proponents
of government-provided paid family leave and government-provided childcare to simultaneously
recognize the inherent value of parents staying home with children when calling for paid family
leave, while ignoring that value when attempting to push more parents away from caring for their
children and into formal employment.

Alleged Benefits for Children Overrated. Advocates of government-subsidized childcare claim
that it will produce large returns, on the magnitude of $9 for every $1 invested. They argue that it
provides large benefits to children and families and could even “pay for itself” through higher
government tax revenues. Those claims are based on two boutique preschool programs that
provided wrap-around services to the households of a few dozen highly at-risk African American



25
   Julia R. Henly and Gina Adams, “Insights on Access to Quality Child Care for Families Living in Rural Areas,”
Urban Institute, October 2018,
https://www.urban.org/sites/default/files/publication/99149/insights_on_access_to_quality_child_care_for_families_
living_in_rural_areas_1.pdf (accessed April 4, 2024).
26
   Ibid.




                                                                                                               10
children five decades ago. 27 The Nobel Prize–winning author of economic studies on those
programs, James Heckman, explained why such high returns are not applicable on a wide-scale
basis:

        I have never supported universal pre-school. The benefits of public preschool programs are
        the greatest for the most disadvantaged children. More advantaged children generally have
        encouraging early family lives. The “intervention” that a loving, resourceful family gives
        to its children has huge benefits that, unfortunately, have never been measured well. Public
        preschool programs can potentially compensate for the home environments of
        disadvantaged children. No public preschool program can provide the environments and
        the parental love and care of a functioning family and the lifetime benefits that ensue.28
        (Emphasis in original.)

Universal government Pre-K programs, such as Head Start29 and Tennessee’s Voluntary Pre-K
initiative,30 have also produced little, if any, lasting positive results, and have sometimes had
adverse effects on children.31 Considering the weak evidence of positive impacts from large-
scale government childcare and Pre-K programs, it is highly unlikely that the very costly
proposed programs could pay for themselves, especially considering that the proposals would
drastically drive up the costs of childcare.

Government’s role in families’ work and childcare decisions should not be to push parents into or
out of the workforce, but to create an environment that optimizes families’ ability to achieve the
work and childcare that they believe is best for them.

Solutions for More Accessible, Affordable, and Flexible Childcare
As the number of working parents remains high and the number of licensed childcare providers
has been declining, many parents have found alternative or informal childcare solutions. Flexible

27
   Lindsey M. Burke and Salim Furth, “Research Review: Universal Preschool May Do More Harm than Good,”
Heritage Foundation Backgrounder No. 3106, May 11, 2016, https://www.heritage.org/education/report/research-
review-universal-preschool-may-do-more-harm-good.
28
   Archbridge Institute, “Nobel-Prize Winning Economist Dr. James Heckman on Social Mobility, the American
Dream, and How COVID-19 Could Affect Inequality,” Medium, April 23, 2020, https://medium.com/archbridge-
notes/nobel-prize-winning-economist-dr-5550da1df5c3 (accessed April 6, 2024).
29
   In 2012, the Department of Health and Human Services conducted a scientifically rigorous evaluation of the Head
Start program’s effects on children through the third grade, finding that it had little or no impact on parenting
practices, and little impact on the cognitive, social-emotional, and health outcomes of participants. See Lindsey M.
Burke and David B. Muhlhausen, “Head Start Impact Evaluation Report Finally Released,” Heritage Foundation
Issue Brief No. 3823, January 10, 2023, https://www.heritage.org/education/report/head-start-impact-evaluation-
report-finally-released.
30
   A Vanderbilt University evaluation of Tennessee’s Voluntary Pre-K initiative—considered a model of
government-funded preschool—found no significant differences between the control group and the preschool group
on any achievement measures by the end of kindergarten, and some negative performance and behavior effects for
Pre-K participants beyond kindergarten. Mark W. Lipsey, Dale C. Farran, and Kelley Durkin, “Effects of the
Tennessee Kindergarten Program on Children’s Achievement and Behavior Through Third Grade,” Early Childhood
Research Quarterly (2018), https://cdn.vanderbilt.edu/vu-my/wp-
content/uploads/sites/1147/2018/05/14112750/Effects-of-the-Tennessee-Prekindergarten-Program-on-Childrens-
Achievement-and-Behavior-through-Third-Grade.pdf (accessed April 6, 2024).
31
   Burke and Furth, “Research Review: Universal Preschool May Do More Harm than Good.”




                                                                                                                 11
work arrangements are a key component for many parents to achieve the childcare arrangements
they desire, and thus, are a part of future childcare solutions.

Another part of the solution is addressing the supply and cost of childcare as many families still
struggle to find the type of childcare they are comfortable with at a cost they can afford. Unlike
many goods and services that become increasingly abundant and affordable over time due to
technological gains and rising incomes, childcare is both labor-intensive and requires significant
structural investments. Childcare cannot be automated or outsourced, and children cannot be
altered to take up less space, to require fewer feedings and diaper changes, or to forgo things like
cribs and a roof over their heads.

While childcare will remain relatively expensive—whether paying for childcare or forgoing
income to watch children—there are ways that policymakers can help to increase the supply and
reduce the cost of childcare, and help more families to achieve the care that works best for them.

Rolling Back Unnecessary Regulations That Do Not Improve the Quality of Care. Childcare
licensing and regulations have set an increasingly high barrier to establishing and maintaining
home-based childcare. In certain states, non-licensed care is illegal. In Maryland, a mom cannot
pay a friend to watch her children after school for a few days a week in the friend’s home without
that friend having to become a licensed childcare provider, and becoming a licensed provider is
excessively time-consuming and costly.

In addition to eliminating unnecessary regulations, state and local childcare licensing authorities
should consider establishing multiple tiers of licensing certifications. In particular, the different
tiers could include standards geared towards expending in-home, faith-based, and on-site employer
childcare. Multiple tiers could enable more providers to open their doors, and families could
choose the type of care they want with the knowledge of what each tier of licensing includes.

Head Start Portability. Policymakers should update the federal Head Start program to function
more like the existing Child Care Development Fund (CCDF). The CCDF, part of the federal
Child Care Development Block Grant, is a federal–state partnership that provides funding to low-
income families to access childcare. Eligible families are provided vouchers through the CCDF
to pay for tuition at a childcare center of their choice, including family-run childcare centers,
relative care, and faith-based providers, but demand for CCDF vouchers typically exceeds the
supply.32 In contrast, the federal Head Start program is more widely accessible, but often less
desirable as it has proven ineffective and mired in fraud.33 Moreover, although the per pupil cost
of Head Start—over $14,000 per year—exceeds the average cost of childcare in most states, the




32
   Office of Child Care, “OCC Fact Sheet,” Office of the Administration for Children and Families, U.S. Department
of Health and Human Services, June 29, 2020, https://www.acf.hhs.gov/occ/fact-sheet-occ (accessed April 6, 2024).
33
   Jonathan Butcher and Jude Schwalbach, “Head Start’s Contagion of Fraud and Abuse,” Heritage Foundation
Backgrounder No. 3467, February 28, 2020, https://www.heritage.org/education/report/head-starts-contagion-fraud-
and-abuse.




                                                                                                               12
program often operates for only a few hours a day, meaning it is of little help to working families
who need childcare.34
To help parents to receive the type of early childcare and education that works best for them,
policymakers should allow parents to take their child’s share of Head Start funding to a childcare
or preschool provider of their choice.

Eliminate Barriers to Employers for Offering Early Childhood Education and Care Benefits.
Employers who provide childcare benefits—such as on-site preschool or childcare programs, or
subsidies for back-up childcare—can be a huge benefit to working parents and can also help
employers to increase employee retention. The Bipartisan Policy Center survey found that 52
percent of parents who currently use informal care said they would consider using formal care if
it were located inside their workplace or their spouse’s workplace.35
Yet, under the Fair Labor Standards Act (FLSA), employers who provide any kind of on-site
childcare or childcare subsidies must include the value of those benefits in employees’ “regular
rate” of pay calculations.36 This complicates and increases costs when workers who are paid
hourly work overtime because, instead of just paying the worker 1.5 times their wage, employers
also have to add on 1.5 times the hourly value of any childcare subsidy, even though those
subsidies are usually fixed benefits.
Policymakers should exclude childcare benefits from the “regular rate” of pay calculations, just
as the law already excludes similar benefits, such as retirement contributions and accident, health,
and life insurance benefits.37 This would particularly benefit lower-income to middle-income
workers who are more likely to receive hourly wages and thus be subject to the current
impediment. The bipartisan 2023 Empowering Employer Child and Elder Care Solutions Act
(H.R. 3271) would accomplish this.38
Allowing a Safe Harbor for “Household Employees” Who Prefer to Be Independent
Workers. Currently, if an individual or family pays someone more than $2,700 per year (the
equivalent of $52 per week) for work performed in his or her, or the family’s, home, the
individual or family is required to pay, withhold, and submit multiple taxes. This process requires
registering as an employer with the state and federal government, hanging official employee-
rights notices in one’s home, and can include registering with, and submitting tax payments to,
the state and federal unemployment insurance systems, state and federal income tax systems, and
the Social Security Administration. In addition to the tax burden, compliance with all the different
rules and taxes is both confusing and burdensome, and mistakes can lead to significant tax bills
for both the household “employer” and “employee.” Under the current rules, a family could not
even hire an after-school babysitter at $15 per hour for three hours two days per week without
exceeding the $2,700 threshold and having to treat that babysitter as a legal employee.


34
   Dan Lips, “Improving the Value of Head Start for Working Parents,” Foundation for Research on Equal
Opportunity, December 23, 2019, https://freopp.org/improving-the-value-of-head-start-for-working-parents-
739472566ec1 (accessed August 31, 2020).
35
   Bipartisan Policy Center, “Understanding Employed Parents Using Informal Child Care.”
36
   U.S. Code 29 USC 207(e)(4).
37
   Ibid.
38
   H.R. 3271, Empowering Employer and Child and Elder Care Solutions Act, 118th Congress,
https://www.congress.gov/bill/118th-congress/house-bill/3271?s=1&r=85 (accessed April 6, 2024).




                                                                                                            13
The process of hiring and treating someone as a “household employee” is overly complex and
burdensome. Meanwhile, the demand for more flexibility, and part-time care and shared care
(such as co-ops and nanny-shares) has almost certainly grown as remote work and independent
work have become more common. In shared situations, it can become extremely complex and
confusing to know who is and who is not an employer. The childcare provider may travel to
different households; families may not know whether they will cross the $2,700 per year
threshold, and childcare workers might find their status as an employee versus a contractor
varying from one week to another, or from one household to the next.
Congress should create a safe harbor to allow individuals performing household work to choose
to be treated as contractors instead of household employees.39

Allowing More Flexible Childcare Arrangements. Recent changes in work, including more
remote work and flexible or independent work options, have increased the demand for part-time,
flexible, and lower-cost childcare arrangements. Most center-based childcare programs do not
allow part-time or flexible attendance because of the high fixed costs of center-based care. Small,
in-home providers face lower fixed costs and can often offer more part-time and flexible options.

State policymakers should consider ways that they can eliminate barriers to more flexible
childcare, including creating optional accreditation standards—which could offer multiple levels
of accreditation—in lieu of mandatory licensing so that providers can choose (and fully disclose
to families) what type of care they provide. And policymakers should not enact unnecessary
regulatory barriers to new types of childcare arrangements, such as parent co-ops.
Letting Families Keep More of Their Own Money. Childcare is expensive and can seem
unaffordable, which often leads to calls for government-funded, or universal, childcare and
preschool. Part of the reason it is so hard for families to pay for childcare, however, is that they
pay so much in taxes. In 2022, Americans spent more on taxes than they did on food, housing,
transportation, and health care combined. 40 Taking even more from households to pay for
government-funded early-childhood programs—which would cost significantly more than
existing private and not-for-profit ones—would leave households with less money to spend on
what is best for them and few, if any, choices about childcare.41 On the other hand, reducing
households’ tax burdens, including their payroll tax burdens, would leave families with more
choices to decide what works best for them, and with greater control over their futures.
Creating Universal Savings Accounts So Families and Childcare Providers Can Save for
Any Purpose Without Restrictions or Penalties. It can be hard for families to have enough

39
   This choice would allow individuals to receive higher base pay as contractors because of the compliance and tax
savings for the households they serve. While those households would have to report any income that they pay to
individuals that exceeds $600 in a year, they would only have to provide a single document—Form 1099-MISC—as
opposed to registering with, meticulously tracking, reporting, and sending taxes to as many as five government
entities.
40
   Author’s calculations based on data from the Bureau of Economic Analysis Consumer Expenditure Survey for
2022, and the Federal Reserve’s data on total federal, state, and local tax expenditures. In 2022, the average
consumer unit spent $51,786 on food, housing, transportation, and health care combined. In 2022, total federal,
state, and local taxes equaled $6.95 trillion. Dividing total taxes by the 134 million consumer units equals $51,850.
41
   Rachel Greszler and Lindsey M. Burke, “Why Uncle Sam Would Make a Bad Nanny,” Heritage Foundation
Commentary, March 1, 2019, https://www.heritage.org/education/commentary/why-uncle-sam-would-make-bad-
nanny.




                                                                                                                  14
money to save and invest for their future goals and unexpected life circumstances, but another—
sometimes equally significant—barrier can be the fear of those savings becoming inaccessible
due to penalties for early withdrawals. It can also be difficult for small businesses, like childcare
providers, to offer employer-sponsored retirement savings plans. Policymakers should advance
universal savings accounts so that Americans can save and invest in a single, simple, and flexible
account, for any purpose and without penalties or additional taxes being owed upon withdrawal.42
The creation of such accounts would make it easier for employers to provide a singular
contribution to fund any type of benefit or savings vehicle that their employees desire. Universal
savings accounts have been particularly helpful to lower-income and moderate-income
households in Canada and the U.K. where a majority of account holders are lower-income.43 By
enabling parents and childcare workers to save in one place and to withdraw funds without
penalty or double taxation, these accounts could help families to pay for childcare or preschool
programs, and could help childcare workers to save for their goals and to be better prepared for
many life events.
Expanding the Allowable Uses of 529 Savings Accounts to Include Preschool and
Homeschooling Expenses. Historically, 529 savings plans could be used to save for, and pay
for, the college expenses of a designated beneficiary, without paying taxes on the accrued
investment returns in the accounts. However, as part of the Tax Cuts and Jobs Act of 2017,
Congress expanded the allowable uses of a 529 plan to include K–12 expenses, such as private-
school tuition. Parents can use these plans to pay for up to $10,000 per year per student from
kindergarten through college. Congress should further expand the allowable uses of 529 accounts
to include preschool, childcare, and homeschooling costs. Although parents would not have many
years to save in a 529 account before a child reaches preschool age, other people, such as
grandparents, could contribute to a designated beneficiary’s account.

Summary

While many families want to have their children cared for by a parent or family member, and
improved workplace policies and independent work options have enabled more parents to achieve
the family care that they desire, there are still many families who either need to, or want to, send
their children to a childcare provider. Finding the care that families desire at a cost that they can
afford can be extremely challenging, and there are limits to how much more affordable childcare
can become because it will always be labor-intensive.

The single most impactful way to increase the supply and reduce the cost of childcare is for state
lawmakers to eliminate unnecessary licensing requirements that do not significantly improve the
safety and care of children. Allowing providers to choose among different levels of childcare
licensing would expand childcare options and could be particularly helpful in increasing the
number of in-home and on-site employer childcare providers.


42
   Adam N. Michel, “Universal Savings Accounts Can Help All Americans Build Savings,” Heritage Foundation
Backgrounder No. 3370, December 4, 2018, https://www.heritage.org/taxes/report/universal-savings-accounts-can-
help-all-americans-build-savings.
43
   Organization for Economic Co-operation and Development, “Encouraging Savings Through Tax-Preferred
Accounts,” OECD Tax Policy Study No. 15, 2007, https://www.oecd-ilibrary.org/taxation/encouraging-savings-
through-tax-preferred-accounts_9789264031364-en (accessed April 6, 2024).




                                                                                                            15
Federal lawmakers can help more families to find the care they need, in an environment they want,
at a cost they can afford, by allowing families to use Head Start funds at a provider of their choice;
by not discriminating against in-home, relative-provided, and faith-based childcare providers in
the distribution of federal funds; by eliminating barriers to employer-provided childcare and to
babysitting care; and by making it easier for families to keep and save more of their incomes.

How to care for their children is one of the most important decisions that parents make, and helping
to ensure that families can pursue the childcare environments that work best for them should be a
priority for policymakers.




                                                                                                   16
                                ** * * * * * * * * * * * * * * * * * *
  The Heritage Foundation is a public policy, research, and educational organization recognized as
exempt under section 501(c)(3) of the Internal Revenue Code. It is privately supported and receives
no funds from any government at any level, nor does it perform any government or other contract
work.
  The Heritage Foundation is the most broadly supported think tank in the United States. During
2022, it had hundreds of thousands of individual, foundation, and corporate supporters representing
every state in the U.S. Its 2022 operating income came from the following sources:
  Individuals 78%
  Foundations 17%
  Corporations 2%
  Program revenue and other income 3%
  The top five corporate givers provided The Heritage Foundation with 1% of its 2022 income. The
Heritage Foundation’s books are audited annually by the national accounting firm of RSM US, LLP.
   Members of The Heritage Foundation staff testify as individuals discussing their own independent
research. The views expressed are their own and do not reflect an institutional position of The
Heritage Foundation or its board of trustees.




                                                                                               17


File and source

File

Greszler_Testimony.pdf

Size

716,909 bytes

SHA-256

ace041082d0322ab13d500f85b2f471ab9b36d6745efaa07cc495f243ba6b54a

Our copy

Greszler_Testimony.pdf

Original

No public link identified.