According to new report by the National Women’s Law Center (NWLC), Michigan is one of the worst states in the country in terms of offering tax assistance to those struggling to meet the high costs of child and dependent care. The NWLC’s quadrennial review of state assistance awarded “grades” to states based on an extensive evaluation of the tax policies of the forty-one states that collect income taxes. The review evaluated tax provisions based on the dollar value of each state’s tax provision, whether families that do not owe income tax can get assistance, whether the provision covers costs and provides assistance across income levels, indexing for inflation, coverage of child and adult dependents, whether the provisions encourage higher quality care, and how easy it is to understand the provision and how the provision is promoted. Based on this evaluation, Michigan was one of fourteen states that received a “failing grade” because it assesses personal income tax but offers no employment-related or dependent care tax provisions.
Since 2000, both childcare costs and the number of children in low-income families have increased, but the Congress has frozen federal funding for direct childcare assistance. Consequently, 250,000 fewer children are receiving child care assistance while the Bush administration’s 2007 recommended budget would further reduce expenditures for child care resulting in 400,000 children losing funding over the next five years. Child and dependent care costs vary but range from $3,000 to $13,000 per year, with families with incomes less than $18,000 spending an average of a quarter of their income on child care expenses. Aside from the high cost to families, many states and the federal government have reduced the number of people eligible for assistance and have cut back on reimbursement rates for child care providers, causing many child care providers that serve low-income children to make what the report termed “extraordinary sacrifices,” or as is more often the case, stop serving low-income children entirely. Funds to improve the quality of care by boosting childcare workers education levels and compensation have also been significantly reduced.
While funding on the national and state level threatens children, the NWLC does point to some successes in providing child care assistance through the tax system. There is currently a federal tax credit that provides up to $2,100 in tax assistance, yet its value is limited in that it is not refundable, so families with incomes so low that they do not pay income tax receive no benefits from the credit. As a result, campaigners have focused on improving state tax credits for child and dependent care expenses and counts as a victory improvement in tax provisions in 23 states over the past four years. The NWLC found that thirteen states now offer refundable credits for low-income families with limited state income tax liability. The improved tax policies are credited with helping reduce family tax bills and increasing refunds used to pay for childcare, thus allowing adult family members to remain employed.
Michigan’s failure to provide tax assistance for childcare stands in stark contrast to tax assistance offered by New York and Oregon, two states cited in the report as have the most helpful tax benefits for low-income families. New York offers a fully refundable credit worth up to $2,310 while Oregon’s refundable “Working Families Child Care Credit” does not have a dollar limit but instead operates on percentages. Under Oregon’s assistance plan, a family spending $6,000 on childcare expenses would be eligible for a credit of $2,400.
