Biden’s rescue plan says child care is too important to leave to the market

Hey, baby!
Hey, baby!
Image: Reuters/Kevin Lamarque
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The passage of the American Rescue Plan, some $1.9 trillion of aid intended to pull the country out of the pandemic recession, reminded me of Lillie Smith.

Smith and her husband deducted the cost of their nursemaid from their federal income taxes in 1937. Because the nursemaid allowed her to go to work, Smith reasoned this was a fair business expense. Tax courts did not agree. In 1939 they found since “the wife’s services as a custodian of the home and protector of its children are ordinary rendered without monetary compensation,” child care could not be a business expense.

This may prompt a chuckle, particularly from working parents dealing with remote learning, but 84 years later, not so much has changed.

I found Smith’s story in “Freedom from the Market,” a 2021 book by economic researcher Mike Konczal, which argues that Americans “have forgotten that free programs and keeping things free from the market are as American as apple pie.”

They got a child tax credit instead

The rejection of Smith’s claim prompted public outcry, particularly after World War II brought women into the labor force in large numbers. The resulting activism and legislation resulted in a set of tax incentives, among the best known of which is the child tax credit. Problem solved?

In practice—and in Konczal’s book—the answer is no. Empirically, we know that like most social policy in the tax code, these credits disproportionately benefit high-earners. In 2014, for example, the median income of those using the child tax credit was $88,036, compared to the median income of all families with children of $52,000.

There’s a broader argument at work here: Markets, as a technology for discovering prices and organizing economic production, have a lot going for them. But as a tool for solving fundamental social challenges, they can fall short. Today, the US is in a neoliberal moment, at the vanguard of deploying markets for all kinds of purposes, using them to produce consumer and industrial goods, but also to provide education and healthcare, or even redress fundamental inequities.

“Freedom from the Market” makes the case that a rich history of market skepticism in the US could be revived again today wherever “free markets” in fact impinge on human liberty. This plays out in many ways—most obviously, determining the provision of healthcare based on a person’s capacity to earn denies the fundamental human freedom of a functioning body to those who lack sufficient success in the market.

The American Rescue Plan moves toward a different approach

One of the major elements of the American Rescue Plan is the conversion of the child tax credit into a child care allowance, to be paid in $300 monthly installments to single parents earning less than $112,000 annually, and two-parent households earning less than $150,000. Some conservatives, like the American Enterprise Institute’s Scott Winship, have criticized this approach on the grounds that it does not include a requirement that the parents have jobs, invoking images of single mothers giving up work to live on the dole.

From an econometric point of view, its clear that the child allowance will reduce working hours for some parents; the precise magnitude is not clear but it appears  small—a recent, comprehensive National Academies study suggests the equivalent of a reduction of around one hundred thousand jobs, in exchange for 4 million children lifted out of poverty.

But again, there is something more at stake here than identifying the proper labor elasticity of single mothers. Konczal says that the “expansion of markets to all of society turns all things into commodities, and leaves no rewards for things that don’t function as commodities.” In this case, things like the production, care, and education of children.

What’s outside the market matters

“Capitalism,” Konczal observes, “relies on work that is carried out in homes, communities and families. This unpaid care work of having and raising children, nurturing young people and sustaining adults is essential for society to flourish…these markets don’t command market wages, though the market economy and waged labor can’t exist without them.”

This was the logic of Lillie Smith in 1937, and it’s the logic of Joe Biden today: A hybrid economy requires hybrid solutions. Submerging the problem of child care in the tax code “only forces market dependency” without redressing the resultant inequality. Instead, policymakers should recognize that universal benefit programs, independent from income, create social solidarity, and the foundation for a dynamic economy that generates prosperity and rewards entrepreneurs without immiserating a lower class. Though it is means tested, the new child allowance, like pandemic checks or Stockton, California’s cash grants to the poor, is a step toward this model.

This book’s history—of free land grants that redressed inequities in the 19th century and funded the first free colleges, of the fight for eight-hour days and weekends, of the provision of social insurance of all kinds, of the evolution of public corporations away from their roots as institutions to benefit the common wealth—shows that far from a novelty, the idea of freedom from the market is central to the American debate.

It’s also likely to influence the path of Democratic policymakers under the Biden administration. This new child allowance is set for just a year. Then the fight to liberate parents from the market begins again.

This post was updated to reflect the passage of the American Rescue Plan.