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| In
Brief: Child Care Tax Credits Not Enticing Enough
Across the country, there is an acute shortage of high-quality, affordable child care. State policymakers have attempted to address this shortage by offering a tax credit to employers that provide child care assistance to their employees. These credits reduce the amount that employers have to pay in state taxes. In all, 28 states have experimented with this incentive. While lawmakers had hoped the tax credit would encourage employers to offer convenient child care to their employees, a recent report revealed that few employers have taken advantage of the tax credit. In 16 of the states studied, five or fewer corporations claimed the credit (out of thousands of corporations that filed state tax returns). In five states, not one corporation claimed the credit.
The researchers provided a number of theories to explain why the tax credit has not been more widely used. It is possible that the credits do not provide enough assistance in reducing corporations' state taxes compared to the cost of providing child care assistance, or perhaps employers are not informed about the credits. Another consideration is that on average, as many as 57 percent of corporations do not pay state taxes and 93 percent of corporations do not owe enough money in state taxes to take advantage of the full amount of the credit for which they are eligible. Further evaluation is needed to assess the impact of these state tax credits, alone or in conjunction with the federal credit enacted in 2001. It is possible, the report suggests, that tax credits may not be the most effective way for the government to pay for child care assistance. It may be more efficient to provide funding directly to providers, parents or resource and referral agencies in order to increase the supply, quality, and affordability of care. Source:
For
more information: Facts in Action, January/February 2003 |
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