Testimony: Support Expanding Child Care Expenses Income Tax Credit

Scott Wasserman, president of the Bell Policy Center, testified in support of expanding Colorado’s Child Care Expenses Income Tax Credit to the House Finance Committee. 

The Bell Policy Center supports HB18-1208 to expand Colorado’s Child Care Expenses Income Tax Credit so more middle-income Coloradans can qualify for it. This bill will also increase the amount of the state income tax credit to 80 percent of the federal income tax credit, providing families with more help in paying for child care expenses.

As we pointed out in our Guide to Economic Mobility, nearly 64 percent of Colorado children under the age of six live in a home where all primary caregivers work, underscoring the magnitude of need and highlighting the importance of child care as a lever that promotes opportunity for Colorado families. Quality child care is the ultimate two-generation strategy, as it prepares children for academic and social success later in life while allowing their parents to work and advance economically.

Child care is vital to all working parents, but research consistently shows it’s a decisive factor in promoting work efforts among low-income mothers. However, as the costs of child care continue to outpace wage growth, more middle-income families are finding it hard to pay for it. This is being felt across Colorado.

As part of our research for the Guide to Economic Mobility, the Bell distributed a short survey to Coloradans from 11 counties in rural and urban areas of the state. We met with these people to hear their concerns and ideas for helping them get ahead. Most respondents ranked quality, affordable child care as a top factor in helping them advance economically, and said a lack of child care is an obstacle to their success.

Analysts for the Colorado Department of Human Services concluded in 2016, “the price parents pay for child care in Colorado is a problem.” National research consistently rates Colorado’s child care costs among the least affordable in the country — and costs can be higher depending on where you live and the age of your children.

Our analysis shows average wages in Colorado have been essentially flat since 2000 when adjusted for inflation, while child care costs, on average, have increased relative to inflation.  As a result, many middle and even upper-income families are finding it hard to cover the costs of child care.

A capstone research project conducted for the Bell by Joseph Zimmerman, a graduate student at the University of Colorado at Denver, finds on average, families with children whose incomes are equal to their county’s median income experienced expenses exceed their incomes between 2000 and 2016, after adjusting for inflation. The study also shows on average, families with children, whose incomes are twice that of their county’s median income had lower net income in 2016 than they did in 2000 after adjusting for inflation. Increasing child care costs is a major factor driving increased expenses for both sets of families.

This proposal also helps those making $25,000 or less who qualify for the federal Child Care Expenses Tax Credit. However, most Coloradans at this level don’t have federal tax liability, and therefore don’t benefit from the federal tax credit. To correct this, the legislature amended the state child care expenses tax credit in 2014 to provide a specific tax credit for those with incomes of $25,000 or less who don’t receive the federal Child Care Expenses Tax Credit. It provides a state tax credit equal to 25 percent of their child care expenses capped at $500 for one dependent and $1,000 for two or more dependents.

The federal tax credit allows families at this income level to claim between 30 percent and 35 percent of their child care expenses up to $3,000. Under this bill, the state tax credit will increase from 50 percent to 80 percent of the federal credit. An analysis of average child care expenses claimed under the federal credit and under the state credit for those earning less than $25,000 shows HB18-1208 will provide roughly an equal state tax credit for those with less than $25,000 who qualify for the federal tax credit and those who only receive the state tax credit.

Increasing the state tax credit for child care expenses as a percentage of the federal tax credit and extending eligibility to those with middle incomes and higher will help more Coloradans afford child care. The Bell Policy Center supports HB18-1208 to expand the child care expenses income tax credit and urges a yes vote on it.

We thank Speaker Duran and Representative Winter for bring the bill to you today. I am happy to answer any questions you may have.