Universal Childcare and Homecare

Universal Childcare and Homecare

Context

Middle-aged, working class Mainers face dramatically declining economic insecurity.  This is quite literally leading to a loss of life equivalent to the US AIDS epidemic.  Meanwhile, state policy makers have little in the policy toolkit that can match the scale of this crisis. 

We believe issues of family care offer the perfect context for state policy intervention.   When children are young, paying for childcare is so expensive for working class families that one worker’s paycheck can barely cover the cost.  As parents age, the costs of eldercare become equally unmanageable, particularly without homecare alternatives to nursing homes.  Families are often forced to spend down aging parent’s assets in order to qualify for Medicaid, diminishing the generational transfer of wealth that traditionally provided the basis for middle class economic security.  Only a broad-based, social insurance system that provides for child and eldercare can truly meet the needs of twenty-first century families.

Social Security, the most successful twentieth century social insurance system, is funded by dedicated, broad-based payroll taxes: a 6.2% payroll tax from employees, a 6.2% payroll tax from employers, and the equivalent for the self-employed.^[1] Although these taxes are broadly assessed, these programs remain popular because the benefits are broadly given.

Yet there are significant tax fairness issues with these payroll taxes.  Most Americans pay more in payroll taxes than they do in income taxes. Social security payroll taxes—the most significant taxes most people pay—are actually regressive.  Low and middle-income workers actually pay more of their income than the wealthy.   That’s because Social Security caps taxable income at $118,500.  Workers who make under $118,500 have 100% of their income subject to social security payroll taxes, while, for example, workers who make $237,000 have only 50% of their income eligible for that tax. 

This exemption of income from social security taxes for upper income earners made more sense in the early years of the system when the US had a top marginal tax rate of 60% to 90%, along with many other Western democracies.^[2]  Those high taxes on the wealthy not only collected the revenue necessary to build out American infrastructure on a continental scale, they allowed a broad middle class to emerge, based often on families in which one parent’s wages could support a spouse staying home to take care of the family, particularly the very young and the very old.  Simply put, families of the 1950s rarely needed professional childcare for the young, or long term home care for the elderly, because a non-wage earning family member could provide that care, supported by the higher wages of another in the family. In other words, the unpaid work, typically from women, was as important to US postwar prosperity as the high wages earned by their spouses in a manufacturing based economy with high union density. 

Today, we face a radically changed situation—some for the better, but too often for the worse.  Although women still tend to face pay inequity at the workplace, their entry into the wage economy has greatly increased gender equality.  Yet families must often have both parents working out of sheer economic necessity; even if one parent wanted to raise children full time, the family cannot afford it.  That’s because since the 1970s wages have not kept up with economic growth.

Furthermore, the taxes on the wealthy have been drastically reduced.  They no longer effectively check run away income growth for top earners, nor generate the revenue necessary for a social insurance system to meet the needs of families adapting to a new economy.  The dramatic reduction of income taxes for the very wealthy, combined with the continuing exemption of that same income from payroll taxes, has created a gigantic loophole, perhaps the largest tax loop hole in America.  To this end, we propose a social insurance system that can meet those needs, while making our tax system more fair.

Policy Goals

• Create a broad-based benefit that directly addresses the costs of child and elder care.  We don’t quite have the resources to create full-fledged social insurance programs, but we should be able to do something meaningful for families.  The idea here is that this benefit will not be targeted at the poor, even though the poor will be helped along with everyone else.

• Pay for it by correcting the regressive structure in the way we currently use payroll taxes to fund social insurance programs.  Essentially, we take advantage of the fact that lots of income flowing to people at the top remains exempt from current social insurance taxation.  In areas where this may raise taxes for the middle class, we offer offsets that may actually lower taxes for middle and low-income wage earners.

Components of Policy

• Universal childcare.  Every child, four years and under, will have access to childcare.
• Support for stay-at-home parents.  For families where someone stays at home to raise their children, they will get the equivalent benefit (about $10,000 a year). 
• Universal home care for seniors and people with disabilities.  Similar to the childcare policy, every family that needs home care will receive the resources from the state to provide it.  When family members can appropriately provide care, they will receive the equivalent resources from the state. 
• Worker standards.  Reimbursement rates to workers should be set high enough to cover living wages.  Collective bargaining rights, paid leave, health care, etc… should all be included for workers as well.  People caring for the families of others should be able to afford care for their own.
• Paid for by closing the “payroll tax loop hole.”  All income (not just wages) for individuals (not just tax households) making over $118k a year will be subjected to a 6.2% payroll tax, the same as social security payroll taxes.  Businesses will also contribute 6.2% for that same income level.  Those taxes essentially extend the tax that everyone under that threshold already pays on all of their wages (“busting” the Social Security “cap”).  For wages, that will be through a state payroll tax.  For non-wage income, there will be an additional line on the state income tax form.   The rationale: “rich people income,” like dividends from stocks, should not be exempt from the same basic social insurance taxes that middle and working class families pay for essentially every dollar they earn (because the vast majority of their income comes through wages subject 100% to payroll taxes).
• Medicaid expansion.  Key to making this affordable will be leveraging all federal funds possible for childcare and home care.  Medicaid expansion is the single biggest missed opportunity for Maine on that front.

Variations

• Cost sharing.  To defray costs, we could easily calculate a contribution families make on a weekly or monthly basis.
• Paid leave family and medical leave.  Some kind of paid leave fund could easily be incorporated here.  See that policy paper for more information.

Paying for this

We estimate childcare for all children four and under costs approximately $388 million a year, in addition to federal resources already leveraged to make childcare affordable to low income families.  We estimate the cost of providing universal home care to be around $700 million a year, in addition to federal funds leveraged, particularly through Medicaid.  That brings the combined total to $1.1 billion, nearly identical to the revenue raised by the payroll tax regime outlined above.

Administration

There are a number of ways to administer this kind of benefit, especially working off of the existing child care development block grants and Medicaid-funded homecare.  Hawaii has completed a feasibility study for providing universal long-term care.^[3]  Minnesota recently completed a report outlining how their existing unemployment insurance trust fund could be re-tooled to administer a paid family and medical leave system, an analysis that is useful here as well.^[4]  While we look forward to outlining in more detail how the system works on the back end, the front end requirements are clear: everyone must be able to access it to get the care they need in a simple, straightforward manner.