MW Why the GOP tax bill is a 'missed opportunity' to help families as child-care costs hit all-time high

Venessa WongAndrew Keshner

The House bill would provide a minor financial boost but overall 'missed an opportunity to do more for families,' advocates say

The massive tax and spending bill working its way through Congress is just a baby step in the right direction for the many parents struggling financially, experts say - especially as annual child-care costs increase faster than inflation and have now surpassed the average annual cost of public college in most states.

House Republicans had several opportunities to offer financial relief to families with children, according to Sarah Rittling, executive director of the First Five Years Fund, an organization that supports public funding for early childhood education.

Those opportunities included larger tax credits for families, larger tax credits for businesses that offer employer-provided care, and a higher cap on tax-advantaged dependent-care savings accounts.

Lawmakers included some of those family-focused upgrades in the bill, but they could have done more, Rittling and other experts said.

Child-care costs in the U.S. just hit an all-time high.

The bill, which is now inching closer to a vote by the entire House of Representatives, would temporarily increase the child tax credit to $2,500 from $2,000. It would also make the employer-provided child-care credit, which helps businesses defray the cost of providing child care to workers, far more generous. A credit for businesses that follow state and local paid-leave laws would get extended permanently.

"What was released last week missed an opportunity to do more for families. But what it did do was acknowledge that it, in fact, is something that needs to be tackled," Rittling told MarketWatch.

"Where I remain optimistic is that this is a process, and it's not over," she added, noting that families still have a shot at getting a better deal once the Senate takes up the bill.

What families would get in the GOP tax and spending bill

The upshot of the family-focused provisions is that "some families are going to lose out. Some of them are not gaining anything," said Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a right-leaning think tank. "The typical middle-income household will see some modest gains from this."

In the House bill, the child tax credit would be temporarily lifted by $500 to $2,500 per child through 2028.

After that, it would fall back to the $2,000 level but would be indexed for inflation, Pomerleau said. That would put it at an estimated $2,200 in 2029, he said.

Under the rules in the GOP bill, the child tax credit wouldn't be available to taxpayers who don't include their own Social Security number along with their child's (and their spouse's, if they're filing jointly) on their tax return. Right now, the qualifying child needs to provide a Social Security number, but the taxpayer can provide a taxpayer identification number given to noncitizens.

Bumping the maximum payment up to $2,500 per child would add approximately $700 to $800 to the average payout for most families claiming the child tax credit, according to a Tax Policy Center analysis released just before the bill's details emerged. Lower-income families would see their benefits climb by just over $350 on average, given the credit's phase-in rules.

What may compound the crunch for lower-income parents are the bill's proposed rules for claiming the earned income tax credit, said Elaine Maag, a senior fellow at the Tax Policy Center. The earned income tax credit is a powerful anti-poverty tool. But the IRS has a track record of making EITC payments to the wrong people or for the wrong amounts.

The bill would require people to precertify their eligibility for the tax credit, "in stark contrast to any other benefit in the tax code," Maag said. That extra step may help the IRS avoid some incorrect payments, but it could also dissuade some eligible low-income families from claiming the credit, she said.

Meanwhile, eligible employers would get larger tax credits for offering on-site child care for workers' children. The formula proposed in the bill would increase the level of payments to 40% of qualified care expenditures, up from 25%. It would also quadruple the limit for small businesses, to $600,000, and more than double the limit for other businesses, to $500,000.

While these incentives are getting more lucrative, few businesses claim them, data suggests. In 2021, around one in 10 workers had access to employer-provided child care, according to the Bureau of Labor Statistics.

Lawmakers "have their heart in the right place. But I don't think it's the most effective way to bring relief to families," said EJ Antoni, a research fellow at the Heritage Foundation, a conservative think tank. The child-care credits geared toward employers are an indirect form of help that may not translate to lower child-care bills for workers, he said.

The slightly higher child tax credit is a Band-Aid that doesn't address the core problems with a lack of affordability. "We need to come to grips with the fact this is a cost-of-living crisis right now," he said.

Child care now costs more than public college in 41 states

Experts agree that the House bill doesn't do enough for families. A new report by Child Care Aware of America found that the average annual cost of child care increased to $13,128 in 2024, up from $11,582 in 2023. Child Care Aware of America has been estimating the national average cost of child care since 2019. The 2024 figure, $13,128, is the highest to date.

Since 2020, costs have soared by 29%.

The average annual cost of center-based infant care now exceeds annual in-state university tuition in 41 states, up from 39 states in 2023.

Costs keep skyrocketing, but parents have few options. There was a 1.6% increase in the number of licensed child-care centers and a 4.8% increase in the number of licensed family child-care homes last year. In nearly every state, the cost of care for two children is now more than the average rent or mortgage payment.

Families can spend the additional $500 from an expanded child tax credit "on what they need to. But $500, at the end of the day, if you just look at something like the price of child care, is a drop in the bucket, and we'd like to see more investments," Anne Hedgepeth, senior vice president of policy and research at Child Care Aware of America, told MarketWatch.

"We're definitely disappointed that the House has not taken the opportunity to, alongside changes to the child tax credit, also improve and enhance the [child and dependent care tax credit]," Hedgepeth said.

The child and dependent care credit is currently a sliding percentage that applies to a portion of up to $3,000 in child-care expenses for one child and up to $6,000 for two or more kids.

The expansion of both credits during the pandemic "helped parents cover the full range of [needs] in what we know to be a really expensive time in their lives" and lifted millions of children out of poverty, Hedgepeth said. "We hope the Senate will approach it differently and do these things in tandem, so that families get the combined benefit."

Sen. Katie Britt, a Republican from Alabama, and Sen. Tim Kaine, a Democrat from Virginia, reintroduced a bill in March that would expand care-related tax credits. Britt, who also supported reforming the credit for employer-provided care, said in a statement to MarketWatch: "I could not be prouder to continue to fight for this pro-family, pro-Main Street, pro-growth legislation when it comes to the Senate to save hardworking families money and allow more parents to be in the workforce."

But the solution to America's child-care crisis isn't dialing up tax credit payouts here and there, Antoni said. The differing opinions show there's consensus about the problem of sky-high child-care costs, but not about the solutions.

What's needed is a more wholesale change, he said, like lower tax rates for households and corporations.

The 2017 Trump tax cuts temporarily lowered most marginal tax rates, and the megabill now moving through Congress would make those decreases permanent. Extra tax cuts would free up more money for households to pay for child care and all the other costs involved in raising a family, Antoni said.

"You have got to be realistic with where we are and realize that something like a tax credit of a few hundred bucks, or even a few thousand dollars, is not going to solve the problem," he said.

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-Venessa Wong -Andrew Keshner

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May 21, 2025 13:44 ET (17:44 GMT)

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