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Congressman Peters proposes child-care tax credit increase

By Charles Gaba - Posted on 14 March 2009

This morning, my 3-year old son and I had the honor of attending a roundtable/press conference event with freshman Congressman Gary Peters (MI-09) to discuss the first bill that he's introducing to the 111th Congress.

My wife and I are both self-employed (myself for 10 years as a website developer; her for the past year as a professional coach/consultant). We share a home office (not easy to do with your spouse, but we've pulled it off so far!), and our son is in daycare 4 days a week (we alternate taking care of him one day a week, which is why I was able to bring him with me today).

Needless to say, the $600+ or so per month is quite a hit to our pocketbooks, only beaten out by our mortgage and health insurance premiums.

Since child care is rightly considered a legitimate business expense (paying someone to watch your kids frees you up to actually make a living), there's a federal child care deduction. In 1981, the Dependent Care Tax Credit (DCTC) was set at 20% of a maximum of up to $3,000 for one child an $6,000 for 2 or more children.

While this was a decent bill at the time, a catch has developed: it hasn't changed once since then. In 29 years, the credit has been locked down at $3,000/$6,000, not adjusted once for either the skyrocketing cost of child care (which has increased at almost twice the rate of inflation) or even inflation itself.

Meanwhile, the average cost of childcare has more than tripled, from around $2,000/year per child in the early '80's to almost $7,000 per year today (as you can see, our own costs are right in that range--we're at $7,600/year, and that's just 4 days per week).

A 20% credit capped at $3,000 means that our credit for this year is just $600, resulting in perhaps $200 actual savings, out of the $7,600 annual cost.

Well, today, Rep. Peters introduced his first bill (called the "Helping Families Afford to Work Act", to double the caps to $6,000 for one child or $12,000 for 2 or more children. In addition, it would raise the cap for families earning $43K+ from 20% to 35%, increasing to 50% for families making under $20K.

In our own situation, our $600 credit would go up to $2,100, and our actual benefit would rise dramatically, from around $200 to perhaps $1,000.

I think it's a great idea. Instead of "rewarding" people for having more children (as some accuse increased dependent credits of doing), it helps them to afford to have *proper care* for the children they *do* have, and helps free the parents up to improve their own employment/income situation. In addition, it helps those who need it the most (those below $20K) even more. Like the other middle-class tax cuts put through by the stimulus bill, this would help ease the burden from a specific, necessary cost for a large number of regular families nationwide.

As for the cost, there's no official numbers, but apparently Peters' internal estimate is at around $2.5-$3 billion/year. I presume that could be easily covered just by kicking Halliburton and KBR to the curb the next time they have to actually BID on a contract.

Here's the Detroit News' coverage of the event for further reference.