Childcare costs are a crushing financial burden for millions of American families, often rivaling or exceeding housing expenses.
Families nationally spent an average of $13,128 on childcare in 2024, according to data from Child Care Aware of America, an advocacy group. In major metro areas, costs reached $25,000 or more.
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Survey data from Care.com, which coordinates between families and caregivers, estimates that, on average, American families spend 24% of their household income on childcare — far above the 7% that experts consider affordable.
As Straight Arrow recently reported, America’s deepening childcare crisis has left many parents with impossible choices: leave the workforce, stretch household budgets to the breaking point or rely on informal care options that may fall short of what young children need.
Now, a comprehensive new analysis from The Budget Lab at Yale University estimates what might happen if the federal government dramatically expanded assistance for early childcare. The results show both promising outcomes and surprising trade-offs that could reshape the national childcare debate.
How could the federal government tackle the childcare crisis?
The Budget Lab looked at five federal policy proposals aimed at helping families with children from infancy to age 4.
The most generous and expensive are a universal subsidy and an income-limited subsidy. These policies would offer free childcare to low-income families, cap out-of-pocket childcare expenses for middle-income families and potentially cap costs for high-income families, depending on whether the subsidy is universal or income-limited.
The Budget Lab also considered less costly approaches: an expansion of the Child and Dependent Care Tax Credit, a subsidy for childcare providers and a $1,000 per child allowance regardless of income, employment or childcare enrollment.
How subsidized childcare could help low- and middle-income families
Currently, parents provide 42% of childcare for young children. If childcare were free for low-income families and subsidized for middle-income families, the Budget Lab estimated that parent-only childcare would drop to 33% and center-based care would increase by almost 50%.
In addition, children from low-income families would earn more in adulthood. The Budget Lab estimated that by age 27, they would earn, on average, $230 more annually, in 2025 dollars.
“Decisions that we make today about investments in children pay off over decades to come,” Diane Whitmore Schanzenbach, a professor at the McCourt School of Public Policy at Georgetown University, said during a webinar this week to discuss the findings.
Subsidized childcare raises maternal employment, but less dramatically than some experts expected
If the federal government provided universal or income-limited childcare subsidies, maternal employment would increase by roughly 6 percentage points: from a current rate of 72.8% to about 78.5%.
This outcome surprised some experts who expected a larger jump in employment. “I personally thought we would see more of the maternal employment increase coming at the very bottom [of the income distribution],” Schanzenbach said.
During the webinar, Elena Patel, co-director of the Urban-Brookings Tax Policy Center, said childcare isn’t the only factor mothers consider when deciding whether and when to return to work.
“There’s certainly a population of mothers for whom the childcare decision is the margin by which they’re working or not,” Patel said, “but for the vast majority of women, that’s not true.”
Patel said there is no “silver bullet” to close the gender pay gap, and the goal of childcare policies should not be the full employment of women.
“I wouldn’t want people to pass a policy like this and then be disappointed that suddenly mothers aren’t working at the same rate as fathers,” she said, “when I just don’t think these policies were ever designed to do that.”
How subsidies could expand childcare access and raise care worker pay
Today’s childcare crisis is fueled, in part, by a lack of access to high-quality care.
Nearly half of American children under 6 live in a so-called “childcare desert,” meaning there are not enough licensed providers to meet the community’s needs, according to a report by the Center for American Progress.
Some of this shortage can be attributed to low pay. Nearly half of early childhood educators live in or near poverty, earning a median of $13.07 per hour, according to research by UC Berkeley’s Center for the Study of Child Care Employment.
“This is a very labor-intensive sector that is not amenable to automation or labor-saving technology,” said John Ricco, a co-author of the Budget Lab’s analysis. He noted that high-quality care requires trusted workers and low staff-to-child ratios.
The Budget Lab estimates that if universal or income-limited childcare subsidies were implemented, providers would need to hire more than half a million full-time-equivalent childcare workers, an almost 80% increase in the sector’s current workforce.
An expansion that large could push up the average hourly wage by $3 to $8, depending on the workers’ education levels.
If care workers were paid more, that would reduce turnover and raise the quality of childcare, which in turn benefits children and families, the analysis found.
What would these childcare policies cost?
None of these policies pay for themselves. The costs to taxpayers of the proposed subsidies or tax credits are higher than the additional federal revenue generated by increased parental employment, the Budget Lab said.
However, the fiscal estimates do not account for potential indirect savings, such as decreases in public assistance, labor productivity gains or effects on state or local spending or revenue.
Providing universal early childcare subsidies would cost taxpayers an estimated $784 billion, with a $14 billion gain in federal tax revenue. The least expensive option, according to the Budget Lab, would be the provider tax credit, with a net cost of $90 billion.
Could these policies ever get implemented?
That is the question hanging over this entire debate.
“I think it would be no surprise to say that there’s been less interest [in these policy proposals] at the federal policymaking level in the last couple of years, especially when compared to the previous four years under the Biden administration,” Ricco said.
While “nothing’s going to pass this year,” he said, “if and when this does become a major national policy topic again, we’ll be ready to provide a fact-based analysis” with a modeling capacity that fills the gap in the current analytical toolkit.
Schanzenbach put it bluntly: “This is such an important affordability question. Parents are speaking loud and clear, so even if this particular Congress isn’t going to start introducing legislation right now, serious responses to the affordability crisis in childcare are going to need to come up.”
Round out your reading
- First, it was the schools. Now they’re coming for your cellphone at work.
- Why one of America’s top economic forecasters is worried about a recession.
- AI companies may not be adhering to their own guidelines — with potentially deadly outcomes.
- Data centers are a thorny issue for Democrats. Maine shows us why.
- We’re building a new Straight Arrow. Help us shape our future by taking our survey.
