The Child and Dependent Care Credit (CDCC), a tax credit based on taxpayers' income and child care expenses, reduces families' child care costs. The nonrefundable federal CDCC is available to working families with children younger than 13 years old in all states, and nearly half of states supplement the federal credit with their own child care credits. The Economic Growth and Tax Relief Reconciliation Act expanded the federal CDCC in 2003, which led to differential increases in CDCC generosity across states and family sizes. I document CDCC eligibility and expenditures over time and across income and demographic groups. Using data from the March Current Population Survey, I find that a 10 percent increase in CDCC benefits increases annual paid child care participation by 4-5 percent among households with children younger than 13 years old. I also find that CDCC benefits increase labor supply among married mothers. Increases in labor supply among married mothers with very young children suggest that CDCC benefits may generate long-run earnings gains.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 established the Temporary Assistance for Needy Families (TANF) program within the United States. TANF mandated 60-month lifetime time limits for federal cash assistance dollars. Because states reserve the right to set their own stricter or more generous time limits, the 60-month lifetime limit did not bind in all cases. In recent years, however, several states imposed TANF time limits for the first time or made existing time limits more stringent. Using administrative and survey data, I find that stricter time limits decrease annual TANF participation by 22 percent and annual transfer income by 6 percent. Consistent with binding TANF work requirements, widespread unemployment, and increases in employment among those on the welfare caseload, stricter time limits do not tend to increase employment or earnings among single mothers in states without generous TANF programs at baseline. Evidence suggests that macroeconomic conditions and the labor market potential of TANF recipients play large roles in determining labor-supply effects of decreased TANF generosity.
The federal Child and Dependent Care Credit (CDCC) subsidizes child care costs for working families. Before 2021, the CDCC was nonrefundable, so only families with positive tax liability after other deductions benefited. I estimate how CDCC eligibility, benefits, and marginal tax rates would change if the credit were made permanently refundable. Under refundability, some 5 percent of single parents gain eligibility and receive on average over $1,000 annually. Eligibility increases are largest among Black and Hispanic households. Increases in marginal tax rates among moderate-income taxpayers are small.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.