If there’s one thing we know about the Budget Reconciliation bill that the Biden Administration and the Democrats in Congress are aiming to pass, it’s that its cost is $3.5 Trillion. Or, according to its supporters, it’s cost-free, that is, because they are defining “cost” to mean net effect on the national debt. (President Biden himself tweeted, “My Build Back Better Agenda costs zero dollars.”) Or, according to its detractors, it’s as much as $5.5 trillion over 10 years when honestly calculated based on a true 10 years of spending, because various gimmicks artificially understate the expense. In any case, the House Democrats are calling for a quick vote on a bill that has not yet been given a CBO score, so neither the American public nor, quite honestly, its supporters, actually know the true cost of this plan.
But the actually provisions in the bill are being presented, over and over again, as a mass of undifferentiated spending, characterized simply as various ways to improve Americans’ well-being, with the only real issue under debate being whether it will do more harm than good due to the impact on the debt, on inflation, and on the economy in general.
That’s a mistake.
Earlier this week, I described a new mandate for employers to provide retirement plans or make provisions for IRA payroll deductions, applicable to even very sall employers, with as few as 5 employees. How exactly that works out, whether those employers will struggle to meet the new rules, how successfully the new bureaucracy works in guiding the employers and employees to IRAs that work for them — no one knows, and, should the bill pass, this will all be in the hands of a government agency left to interpret the legislation by rule-making.
Last week, I explained the family leave plan in the Reconciliation bill — a plan which, unlike any reasonable social insurance proposal, is either deficit financed or funded by taxes on the rich.
And let’s not forget the Biden Medicare dental plan, in which — wholly ignoring the fact that the Medicare Part A trust fund is projected to become insolvent in 5 years’ time — the administration plans to add a new benefit for dental, vision, and hearing, and, what’s more, unlike Part B and D for doctors’ services and drugs, plans to do so without even the modest cost offset of charging 25% of costs as participant premiums.
But here’s another part of the monster bill which, over and over, merely gets a bullet point in the reporting that is now focusing on the overall pricetag and the degree of deficit spending: a program for subsidized child care. (See the Committee for a Responsible Federal Budget’s Reconciliation Tracker for links to the bills’ texts, including this one.
This sounds innocuous: no middle class family will pay more than 7% of pay for the cost of child care. But hidden behind this statement is a massive program which is not getting any scrutiny at all.
Consider, as a contrast, the design of the Affordable Care Act — below a given income limit, individuals received income-based subsidies based on a model plan design, and they could shop around for the plan that best suited their needs, and pay more for a more generous plan design, a wider network, or an insurance company they believed offered better customer service, or pay less for a plan with a lower pricetag for these reasons and pocket the difference.
The child care subsidy is nothing like this. Instead, each state will calculate a “cost of child care” based solely on tiers for quality differences. Then each participating child care center will accept those vouchers and parental copays as payment in full; they cannot charge more for better services, nor can they charge less and allow families to save the difference. And those costs are slated to be far higher than the cost of child care today; for one thing, the bill calls for “adequate” and “living wages” as well as wages that are “equivalent to wages for elementary educators with similar credentials and experience.” These sorts of “model cost estimates” exist already; to take one example, in 2019, the state of Illinois contracted with researchers at Northern Illinois University, who calculated that, adding in higher wages, more staff, and more specialized staff, in a day care center, for “high quality”-rated centers, infant care would run $31,827 per year in the Chicago metro area and $28,996 in the rest of the state. Even a family/home day care was determined to cost $22,460 in the Chicago area and $19,960 elsewhere. For comparison, the state of Illinois, when it provides subsidies for poor families for child care right now, pays a maximum of $12,602 per year for infants, so this is a more than doubling of the cost.
These are astoundingly-high figures — and even at these rates, families with less than 75% of the family-size-adjusted state median income would pay nothing, increasing to 2% at 100% of median income, 4% at 125%, 7% at 150%, and a sharp-cut off that at 200% of median income, families go from a 7% fixed copay to shouldering the full cost of day care at rates that will have exploded due to the new calculations of “cost” for the government subsidies. (Note that “family-size-adjusted median income” is an artificial construction that takes true median income and adds a living-cost adjustment, since, of course, in the real world, how many children you have does not actually affect your wage.) How will this impact the childrearing decisions of lower-than-median families who would otherwise have had one parent choose to stay home or work part-time, or of upper-income families who suddenly find that nanny care is more affordable, if they can find a nanny?
And that’s not even the worst part of this bill: the worst part is that, as written, the subsidies phase in gradually, covering families up to 100% of median income in 2022, increasing to 200% in 2025. And then, in 2028, it all ends. That’s nonsense, of course — the Democrats drafting this bill have no intention of actually ending the subsidies after 2027; they have merely established this cut-off in order to claim a far lower “10 year cost” than is actually the case, relying on public pressure to extend the program after it has been implemented and the public discovers that, indeed, it was written as a temporary program.
Absolutely none of these programs should be passed by means of a Reconciliation bill. Covering dental treatments in Medicare may be worthy, but not without addressing larger Medicare funding issues. Creating a family leave program is something with broad support, but it is crucial that it be a true social insurance program. Expanding worker access to retirement savings has long been under discussion, but there are plenty of bipartisan proposals. Creating a child care subsidy that seems poised to create a single one-size-fits-all daycare center, with unintended consequences in spades, could do far more harm than good. I suspect that if I were to dig into other components of the bill, I’d find even more such particulars, all passed without the American public, and possibly even Congress itself, knowing the first thing about them, because the sum total of the discussion is about the pricetag.
As always, you’re invited to comment at JaneTheActuary.com!