Moneybox

Making Child Care Affordable Is an Extremely Obvious Way to Boost the Economy. Elizabeth Warren Gets That.

GLENDALE, CA - FEBRUARY 18:  U.S. Senator and Democratic presidential candidate Elizabeth Warren (D-MA) speaks at an organizing event on February 18, 2019 in Glendale, California. Warren is attempting to become the Democratic nominee in a crowded 2020 presidential field and is the first candidate to have a public campaign event in the metropolitan area of Los Angeles.  (Photo by Mario Tama/Getty Images)
Elizabeth Warren, pointing.
Mario Tama/Getty Images

Bringing down the absurd cost of child care in the United States is one of the most obvious yet under-appreciated ways that Washington could bump up the country’s economic growth. On Monday, Sen. Elizabeth Warren showed that she is one of the few politicians who seems to understand that opportunity, unveiling an expansive plan that would give all parents access to free or subsidized care for their kids.

Under Warren’s proposal, the federal government would spend more than $1 trillion dollars over a decade to fund a network of locally run child care facilities. For poorer and lower-middle-class households, the services would be free. Others would have to pay, with fees rising based on income. But families would not required to spend any more than 7 percent of their income on child care expenses—which is the amount the Department of Health and Human Services considers affordable.

Warren is seizing on an issue that until now has received scant attention from the Democrats’ 2020 hopefuls, despite being a source of deep and abiding financial panic for god only knows how many families. The price of full-time, center-based infant care can vary enormously from state to state, but can rival the cost of college tuition in some parts of the country (in New York, the average tops $14,000 a year; in California, it nears $12,000). And while most families do find less expensive arrangements, like getting help from family, many still end up deeply burdened.

But it’s not just families that suffer from the expense. As I wrote last week, the employment rate among working-age women in the United States now lags much of the developed world, and one major reason why is almost certainly our backwards approach to family policy—aside from our lack of affordable child care, we’re the only rich nation without guaranteed paid leave. As a result, women have more difficulty and fewer incentives to remain in the workforce, which limits their future earning ability, and the longterm potential of the economy.

Warren recognizes all this. The press release for the policy rollout states that the “lack of access to high-quality, affordable care prevents parents from fully participating in the workforce, holding them back from career and educational opportunities and placing a drag on our entire economy.” But more interestingly, her campaign also commissioned Moody’s Analytics to analyze the economic and budget effects of her child care proposal (the firm wasn’t paid for the work), offering an opportunity to see how it stacks up against other macro-economic policy ideas that have been proposed or tried recently.

Predicting the impact of Warren’s bill of course takes a bit guesswork. While the balance of international and domestic evidence suggests that subsidizing child care does lead more women to work, careful empirical studies have shown some mixed results about the effects. But Moody’s Analytics is about as mainstream of an economic forecasting crew as you’ll find, and its worth considering their results. Chief Economist Mark Zandi told me that just by lifting labor force participation, mostly among women, its model predicts that Warren’s bill would add 0.08 percentage points to economic growth per year, over a decade. “It’s meaningful,” Zandi told me. To put that figure in a bit of perspective, he said Moody’s anticipated that cutting the corporate tax rate from 35 percent to 21 percent, as Republicans did in 2017, would have raised growth by 0.04 percent per year, if Congress had bothered to pay for the plan (their model assumes that the law’s increased deficits will eventually negate some of the growth impact).

The added economic boost from helping women stay in the workforce won’t be enough for Warren’s bill to pay for itself. Even when you factor in added tax revenues thanks to economic growth, Moody’s still forecasts that it will add more than $700 billion in additional costs to the federal budget over a decade. But Warren isn’t promising magic; she’s proposing to pay for her plan with revenue from her wealth tax on the ultra rich. And if you’re looking at it purely as a macro-economic policy, subsidized child care might give you a lot more bang for your buck than tax cuts for Walmart.