Universal Child Care and Early Learning Act: Helping
Families and the Economy
By Mark Zandi and Sophia Koropeckyj

American households are struggling to find high-quality, affordable child care for
their young children. This is a serious financial burden to these families, and it is
also weighing on the economy, because it crimps the ability of parents to work.
Labor force participation of prime-age workers has at best been stuck in place for
more than three decades, limiting the growth in the labor force and broader
economy, particularly as the large baby boomer cohort retires. The Universal Child
Care and Early Learning Act would go a significant way toward addressing the
financial plight of these families and supporting economic growth.
Need for child care
Families are in desperate need of high-quality, affordable child care. Fifty years
ago, approximately half of all women stayed home to take care of their children. As
female participation in the workforce increased rapidly in the 1970s and 1980s,
stay-at-home moms became much less common. Today, only about one-fourth of
moms are at home with their kids.
Spending on child care has risen commensurately. Some 4.9 million American
households spent almost $36 billion on day care centers, nurseries and preschools
in 2017.i The typical household that has child-care expenses spent $7,200 per year,
equal to approximately 10% of their income. ii Given this significant expense, only
about one-third of families with the nearly 20 million kids under the age of 5 use
child-care services; the rest rely on relatives or informal and often unreliable
arrangements.
The cost of child care varies considerably across the country. Nationwide, the
average cost of putting a child under 5 into full-time formal care was close to
$10,000 in 2017. But costs range as high as over $20,000 a year for center-based
infant care in Massachusetts and Washington D.C. to closer to $5,000 a year for
family-based child care for a 4-year old in Alabama and Texas. iii
The cost of child care has also risen quickly, substantially outpacing overall
inflation. Over the past 20 years, the cost of day care has doubled, while prices for
all goods and services are up only about 1½ times (see Chart 1). Although day care
costs have risen more slowly more recently, this is unlikely to last, since the tight
labor market is quickly driving up wages for day care workers, the biggest cost of
supplying day care services.
The high and quickly rising cost of child care has weighed heavily on female
labor force participation. Indeed, participation by women in their 20s, 30s and early
40s peaked in the late 1990s.
Existing government support

 There is a patchwork of government programs to help families get child care and
prekindergarten educational services. At the federal level, the biggest programs
include Head Start and the Child Care and Development Block Grant. These
programs are effective, but are targeted to help only low-income families, typically
those who earn less than 85% of a state’s median income, and reach only a small
percentage of eligible low-income families. The U.S. military also heavily subsidizes
child-care centers for a couple of hundred thousand service members. Together,
these programs reach about 2.5 million children under the age of 5 at a cost of
approximately $10 billion per annum.
Middle-class families also benefit from federal child-care tax credits, but the
support is modest and not nearly enough to cover their child-care costs. Moreover,
the tax credits are not refundable, so the benefit does not help working-class
families who do not have a tax liability. These tax credits are used by about 6.5
million taxpayers at a cost of close to $6 billion per annum.
And at the state and local level, 43 states and the District of Columbia provide
prekindergarten programs that serve about 1.5 million 3- and 4-year-old children.
Universal Child Care and Early Learning Act
Senator Elizabeth Warren has proposed the Universal Child Care and Early
Learning Act to address families’ need for high-quality, affordable child care. The
legislation establishes a federal government program, administered by state and
local governments, nonprofit providers, tribal organizations, and other community
entities, that guarantees families access to care for their children from birth to when
they enter school. Access to high-quality, affordable child care would become an
entitlement.
The program establishes a network of public child-care centers and family childcare homes, staffed by child-care workers who will receive wages competitive with
public school teachers in their communities. It builds on current federal child-care
programs, most notably the military child-care program and the federal Head Start
program, which offers children a full range of educational, health, social and other
services. This proposal significantly scales up Head Start, utilizing its existing
centers and providers, allowing them to continue serving low-income children while
also enrolling children who are not from low-income families.
The current Child Care and Development Block Grant Program would become a
supplemental support for low-income families who require additional services in the
private child-care market for needs that may not be fully covered by the new
system, including extended hours, some specialized services for children with
disabilities, and after-school services for children 5 to 13 years old.
Under this proposal, all families will be able to access child-care and early
learning services regardless of their income, employment or circumstance. Families
below 200% of the federal poverty line could access these services at no cost.
Middle-class families above this threshold would pay a subsidized fee based on their
income. No family would pay more than 7% of their income for these child-care
services.iv

 The Universal Child Care and Early Learning Act would substantially increase the
number of children able to receive formal child care. An estimated 6.8 million
children, equal to about one-third of those younger than age 5, receive formal care
today. The legislation would ensure an estimated 12 million children, equal to 60%
of those younger than 5, will ultimately receive formal care. Parents or other
relatives will care for 30% of kids, about the same percentage as today, while only
10% of kids will have no regular arrangement for child care, down from just under
one-third of kids today. Of those receiving formal care, 8.8 million kids in families
below 200% of the federal poverty line would receive free child care. The typical
American family with young children currently paying for formal care would see
their annual child-care costs decline by 17% to less than $6,000 per year.
Budgetary costs
The additional cost to the federal government of providing universal child care
under this proposal is estimated to be approximately $70 billion per annum on
average, or $700 billion over a 10-year budget horizon on a dynamic basis (after
accounting for the economic impacts of the proposal).
This is based on a number of assumptions, including that the legislation
becomes law this year and becomes effective in calendar year 2020 (see Table 1).
We also assume that it takes two years before there is full take-up on the program.
It will take time for the centers and family child-care homes to become fully
operational across the country and for families to work out what options are best for
them.
The budget cost estimates also depend on the assumption that almost two-thirds
of families that use formal child care will use center care, which is more expensive
than family child-care homes. We assume that the cost of center care by 2020 will
be $14,500 per child, compared with almost $11,000 per child for family child-care
homes. These costs also reflect the proposal’s mandate to pay child-care workers
substantially more than they earn currently to ensure consistently higher quality of
care.v
To help defray some of the federal government’s costs, for low-income children
the local administrator will cover 20% of the cost and the federal government the
remaining 80%. For children in families with higher incomes, 50% of the cost of care
will be covered by the local administrator through the collection of parental copayments and other means, and the federal government will pick-up the remaining
half. Regardless of the arrangement between the federal government and the local
administrator, no family will be required to spend more than 7% of their income on
public child care.
The proposed universal child care and early learning services could be paid for
by revenues generated by Warren’s proposed 2% tax on household net worth above
$50 million and 3% tax on net worth above $1 billion. That is, $700 billion out of the
total 10-year revenues generated by the proposed net worth tax could be used to
pay for the child-care proposal.vi The Universal Child Care and Early Learning Act is
thus deficit neutral over the 10-year budget horizon on a dynamic basis.

 Economic lift
To determine the impact of the legislation on the broader economy, we use the
Moody’s Analytics model of the U.S. economy.vii The legislation quickly lifts economic
growth, as the stimulus created by providing financial support to lower-income and
middle-class families more than offsets the negative fallout from increasing taxes on
the very wealthy. Low- and middle-income households have a much larger marginal
propensity to spend—the share of their income they spend—than do the wealthy.
Further boosting near-term growth will be the significant expansion of child-care
centers across the country. Existing child-care centers employ 1.5 million workers,
which will increase substantially under the legislation as the number of children
receiving child care expands. The significantly higher wages paid to child-care
workers will also increase their spending, adding to the economic benefit.
Longer run, the economy gets a boost from the legislation as lower child-care
costs lift labor force participation and hours worked. viii It becomes cost effective for
more parents to work, and the extra time and scheduling flexibility created by the
child care allows them to work more hours. Research on the labor supply impact of
lower child-care costs shows there are meaningful impacts, and our own research is
consistent with this.ix Accessible child care facilitated by federal support to childcare providers has especially strong employment effects for single mothers, moms
with young children, and lower-income mothers. x
There is little impact on the economy from the higher taxes on wealthy
households. These households have substantial financial resources and will not
significantly change their spending and saving behavior. Moreover, since the
increase in tax revenues pays for the expansion of child-care services, it ensures
that the Universal Child Care and Early Learning Act would be deficit neutral, with
no resulting material impact on interest rates.
These results likely understate the economic benefits of the legislation. The
model does not consider that the increased support for early childhood education
should also ultimately reap economic benefits. According to the best known study
on the issue, the benefits, including greater lifetime earnings, the non-earnings
benefits of reduced transfer payments and remedial education expenditures, and
savings from less demand on the criminal justice system, are substantial. xi Studies
conducted on a variety of other preschool programs find similarly large increases in
earnings and societal benefits.xii
Conclusions
The cost of high-quality child care is a heavy burden on the finances of American
families and the economy. In many parts of the country, high-quality child care is
not even available. The Universal Child Care and Early Learning Act addresses this
serious problem. It is fiscally responsible legislation that would scale up federal
child-care programs that are already in place and shown to be effective in meeting
the challenges of providing high-quality child care. The legislation significantly
reduces the cost burden of child care for most families, improves the quality of child

 care, enhances childhood development, and supports increased labor force
participation and stronger economic growth.

 i This is based on data from the Bureau of Labor Statistics’ 2017 Consumer Expenditure
Survey.
ii Households in the top decile of the income distribution, with annual income of over
$155,000, spend almost $12,000 per annum on child care, while those in the bottom
decile, making less than $13,000 per annum, spend close to $3,600.
iii These costs are determined by a January 2018 survey conducted by ChildCare Aware of
Child Care Resource and Referral agencies. Respondents were asked to provide 2017 cost
data for infants, toddlers, 4-year-old children, and school-age children in legally operating
child care centers and family child care homes. Legally operating programs include
licensed programs and child care programs that are legally exempt from licensing.
iv The U.S. Department of Health and Human Services considers child-care costs above
7% of a family’s income unaffordable. The national average cost of center-based child
care was $10,132 in 2017, according to ChildCare Aware, or 17% of median household
income.
v The mean hourly wage of a child-care worker in 2017 was $10.67, 44% of the mean
hourly wage across all occupations. State qualifications for child-care workers vary across
states, ranging from no required training to a college degree. Further, four-fifths of states
establish different requirements depending on whether a program is home-based, centerbased or public preschool. Even in states that require that caregivers hold a college
degree, their earnings fall well below that of teachers of older children.
vi An estimate of the tax revenue generated by Warren’s net worth tax is provided by
University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman.
vii One complication is that we have not evaluated the budget or economic implications
of the senator’s wealth tax. As such, we instead assume that her child-care program is
paid for by reforms to the estate tax sufficient to generate the needed tax revenue. We
have previously modeled the impact of estate taxes, as this is an oft-proposed change in
the tax code and was used by the senator to pay for her recently proposed legislation to
address the affordable housing crisis. The working assumption is that the budget and
economic impacts of higher estate taxes are similar to those of her wealth tax. See
“Addressing the Affordable Housing Crisis,” Mark Zandi, Moody’s Analytics white paper,
September 2018 for an analysis of the economic impact of Senator Warren’s Housing and
Economic Mobility Act.
viii The personal financial costs to parents who leave the workforce to care for a young
child because of the high cost of child care are high. They accumulate fewer skills, and
their productivity is diminished, resulting in lower wages when the parent eventually
returns to the workforce. The effect tends to fade only after several decades. Further, a
woman's career progression is reduced even more if she has more than three children,
and the penalty to wages is never made up. Even when women remain engaged through
part-time work, their career progress is reduced.

 ix For more information on the labor force participation rate impacts, a literature review is
available in L. J. Bettendorf, E. L. Jongen, and P. Muller, Child Care Subsidies and Labour
Supply—Evidence From a Large Dutch Reform, Labour Economics (2015).
x Kimberly Burgess, Nina Chien, Maria Enchautegui, “The Effects of Child Care Subsidies
on Maternal Labor Force Participation in the United States,” Department of Health and
Human Services, ASPE Issue Brief, 1-6 (2016).
xi James J. Heckman, Seong Hyeok Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam
Yavitz, The Rate of Return to the High/Scope Perry Preschool Program, Journal of Public
Economics Vol. 94.1 (2010): 114-128.
xii Leonard N. Masse and W. Steven Barnett, Comparative Benefit-Cost Analysis of the
Abecedarian Program and Its Policy Implications, Economics of Education Review Vol.
26.1 (2007): 113-125. Arthur J. Reynolds, Judy A. Temple, Suh-Ruu Ou, Irma A. Arteaga,
and Barry A.B. White. 2011, School-Based Early Childhood Education and Age-28 WellBeing: Effects by Timing, Dosage, and Subgroups Science Vol. 333.6040 (2011): 360-364.