Press Room

Tax Cuts are Not Good for Children
by Gordon Cleveland and Michael Krashinsky

The folk wisdom about children and families suggests that if single-earner families (what used to be called “male breadwinner families”) were taxed fairly, and if the Child Care Expense Deduction did not favour parents who purchase child care, then more mothers would choose to stay home with their own children, instead of being employed. This is proposed as a solution to families’ child care problems.

Unfortunately, the agenda of the tax-cutters does not make much sense. First of all, it is not true that our tax system penalizes stay-at-home parents. Imagine two families, each with young children. One is a single-earner family in which the husband earns $50,000 and the wife stays at home to care for the children and do household chores. The other is a two-earner family in which both husband and wife work full-time and together earn $50,000. The second family has to purchase child care services, home cleaning services and scramble around on weekends to get household chores done. Which of these families is better off? The honest answer is that the single-earner family is better off, and therefore should pay a higher level of tax. Our current tax system is reasonably fair precisely because single-earner families are taxed more heavily at the same income level as two-earner families.

Second, the Child Care Expense Deduction is not a “special” tax break for users of paid child care. Child care expenses are deductible because they represent a very considerable work expense usually incurred by mothers when they enter the work force. The money spent on work-related child care is not available for consumption by the employed family with young children, so the Child Care Expense Deduction excludes this from taxable income. Slashing the Child Care Expense Deduction would create a dramatically unfair tax system for employed mothers.

Finally, an agenda which focuses exclusively on tax cutting does not address the primary needs of the majority of our children. We know that good quality early childhood education experiences will have beneficial effects on all children.; this is as true at age two or three as it is at age five, when public kindergarten starts. Over 75 per cent of Canada’s children who are between 18 months and 6 years of age now use non-parental care each week. Improving the developmental and educational quality of that care should be our key priority in the expenditure of public funds.

Unfortunately, giving parents more money will not be enough to solve this problem. Tax breaks for parents will be spent on many things according to the priorities of the family. But more income for families would not guarantee the purchase of better quality child care. Why not? An important part of the problem is that parents find it difficult to accurately judge what care arrangements will deliver good quality developmental experiences for their children. In the language of economics, early education is an “experience” good, because purchasers do not really know the quality of it until after, perhaps long after, their child has used it. An interesting experiment in the United States in 1995 had parents and child development experts rate the same 400 child care classrooms using a list of basic caregiving characteristics known to produce early child development. Child development experts rated the average quality of care as poor to mediocre (a rating between three and four on the rating scale). In contrast, 90 per cent of parents rated the caregiving situation as excellent (between six and seven on the same scale). Since parents find it difficult to distinguish good from mediocre quality care, they go for lower-priced care that seems (but isn’t) pretty good. In this market climate, the good quality caregivers cannot survive; they are selling high-priced care and too few parents are able and willing to pay the price.

Our conclusion differs radically from the prevailing tax-cut folk wisdom. Tax cuts are a blunt weapon of social policy, which will reinforce income and wealth differences in the population and do little to promote the social good except where it is identical with the public good. Money given directly to families with children is a good thing, but should not be the main thing. Lowering the price and ensuring high quality community-based early childhood education and care services should be on the top of every government’s agenda in this new millennium.

Gordon Cleveland and Michael Krashinsky are economists at the University of Toronto at Scarborough, and editors of Our Children's Future: Child Care Policy in Canada (University of Toronto Press, 2001). This article first appeared in The Toronto Star, November 17, 2000.