Reconciliation: A tax bill with key implications for families today and tomorrow

A major priority for the new Congress and Administration is tax legislation, which could be on the agenda soon in the form of a reconciliation bill – a special type of bill that requires only 50 votes in the Senate to pass[1].

Reconciliation bills can only be used for changes in mandatory spending (anything that does not need to be agreed upon by Congress each year to continue). Mandatory spending includes areas such as entitlements Medicare, Social Security, some parts of government food programs, and servicing the federal debt and taxes. It does not affect annually appropriated discretionary programs like 21^st Century Community Learning Center (CCLC), Title I, or Community Schools. Currently, Congressional Republicans are debating whether to have one or two reconciliation bills. The Senate has put forth a proposal for an initial reconciliation bill focused on defense, immigration, and energy policy, which would then be followed by a reconciliation bill covering taxes later in the year. The House has been reported to prefer only one reconciliation bill in this calendar year including multiple initiatives like defense, energy, immigration, and taxes.

The government is especially keen on a new tax bill because several provisions from the 2017 Tax Cuts and Jobs Act (TCJA)— which was passed through the budget reconciliation process in the previous Trump administration — are set to expire at the end of 2025.

This Reconciliation bill could preserve, expand and include new tax laws that support afterschool, childcare and summer learning. Research shows that investments in early childhood education and afterschool programs yield substantial long-term benefits and returns on investment for the economy and society.

Afterschool related tax policies include:

1. Child and Dependent Care Tax Credits (CDCTC) – This tax credit allows families to claim a credit for money spent on childcare for dependent children under age 13. Working families can expense up to $3000 for one dependent and $6000 for 2 or more dependents at a given credit rate based on their income. The credit is not-refundable, so cannot be claimed for those with no tax liability, and it is not indexed to inflation, so it does not rise as costs for care rise. For one year through the American Rescue Plan Act, the credit was expanded and made refundable before returning to the baseline. It has otherwise not changed in amount since 2001, despite examples of bipartisan support in the Senate and House for its expansion.
    
2. Dependent Care Flexible Savings Account – This credit provides up to $5000 to be set aside by an employer in pre-tax dollars to allow an employee to use the funds to reimburse payments for child care for children up to age 13. Expenses reimbursed under this savings account, are deducted from the expenses calculated in the CDCTC.
    
3. Child Tax Credit (CTC) – The CTC provides a tax credit of up to $2000 per dependent child up to age 16. The CTC is paired with a refundable “Additional Child Tax Credit” of up to $1,700 if a family’s credit exceeds their tax liability. Parents can use this credit for any expenditures they choose – often food, utilities, housing, clothes, afterschool and summer programs, childcare and educational expenses. Families can claim the CTC and CDCTC together if they are eligible for both. If not extended, the CTC credit will revert back to $1,000 per dependent when the TCJA expires.

Each of these tax benefits supports program affordability. Affordability is a major barrier in parent’s ability to access afterschool programs for their youth. In 2004, 43% of parents felt afterschool was unaffordable, in 2020 that number had risen to 57%. The Department of Labor estimates one child in school age care costs families between $6,000 and $9,000 a year, and that does not include the full time care many families need over the summer.

A circulated “Menu” of options from the leadership of the House Ways and Means Committee, which leads the reconcilation process, lists areas for potential expenditures (“costs”) and cuts (“savings”). To reduce the overall long-term impact on the deficit, Congress may aim to balance provisions they hope to extend and new tax expenditures with reductions in other areas that they view as lower priorities.

The menu, which is worth a scan to understand some of the items under consideration, includes a provision that shows the CDCTC may be on the chopping block, as well as other areas of interest to providers such as reduced access to the Community Eligibility Provision for school meals.

Cutting or eliminating either of these programs would be extremely detrimental to families accessing programs afterschool and summer.

Take Action:

All members of Congress will need public input as they undertake these efforts to prioritize and balance the bill in the interests of their constituents.

Affordability, access, and quality go hand in hand. Taxes are a critical but not sufficient part of a larger puzzle for families in need of afterschool and summer programs. The Reconciliation package will be one important piece in defining the funding landscape for afterschool in the year ahead. Continuing to advocate for 21^st CCLC Programs in the upcoming appropriations process will be another.

With reconciliation, providers and parents have a great opportunity to advocate to ensure family friendly tax policies such as the CDCTC and CTC are not only protected but expanded to be accessible to more families that need them – including

• being made fully refundable
• being made available to all tax paying families
• increasing the amount of each credit, and
• indexing each credit to inflation.

Although reconciliation and tax policy can seem complicated, taking action to prioritize families access to afterschool and summer support is simple. Currently, the National Association for the Education of Young Children and Mom’s First have campaigns allowing those interested to easily weigh in to protect and strengthen the CDCTC and CTC.

We know there is a lot on the agenda this year, with 3 big funding bills to possibly weigh in on. We will continue to update the field as the reconciliation and appropriations bills move forward.