Abby McCloskey: Plot twist: Republicans just got families more money

Washington is a funny place. I don’t think President Donald Trump was thinking about former President Joe Biden with his One Big Beautiful Bill Act (OBBBA). But it certainly seems to poke fun at Biden’s BBB (Build Back Better) plan in name — and exceed it in some of its family priorities.

The Democrats’ BBB was all about supporting working families with child care, paid leave and an expanded Child Tax Credit — but it never made it past the Democratic-held Senate. Somehow it was Republicans who ended up taking ground on these working family policies in their behemoth reconciliation package. How’s that for a political scramble?

The OBBBA will impact families in myriad ways — but while Medicaid cuts, Trump Accounts and the expanded Child Tax Credit have all gotten attention, two working family provisions have flown under the radar.

The first is child care — specifically, tax incentives to get employers to include it as part of their compensation packages. The law expands the employer-provided child care credit (45F) in size and scope. The law increases the maximum annual credit from $150,000 to $500,000, raises the percentage of qualifying expenses to 40%, and allows small businesses to access a credit up to $600,000 at 50% of qualified expenses. The credit is intended to persuade companies to build or operate child care facilities or to contract with an existing child care provider to secure slots for employees’ children.

Critics are skeptical that this will impact child care in a meaningful way. They argue that the take-up of this tax credit has been relatively small in the past. It can end up rewarding large companies that are already offering such support. And even with a partial offset, child care is a huge expense and most companies simply don’t have the margin to subsidize it. This is a critique I also have lobbed, preferring for the money to go directly to parents.

A 2022 GAO study supports these concerns, finding that only 200 companies filed for the credit in 2016 (the most recent data available) for a total of less than $20 million in benefits. But supporters say the credit has been underused because the offset has not been large enough and that the significant OBBBA expansion will help, especially for small businesses. Time will tell.

The tax-and-spending law also expands direct child care support for families. The law increased the maximum annual amount for dependent care flexible spending accounts (an employer-sponsored account similar to a health care FSA). Parents can use these funds to pay for daycare for children under 13 with pretax dollars, but the cap had not been raised since 1986. The new law raises it from $5,000 to $7,500.

For me, the big win in the OBBBA is that it expands the Child and Dependent Tax Credit — not to be confused with the Child Tax Credit. (The CTC is a general payment to family, while the CDCTC is used against child care expenses specifically.) The expansion of the CDCTC allows it to cover up to 50% of eligible child care costs, and the cap is now indexed to inflation. This tax credit was created nearly 50 years ago, with an average claimed credit of$206 (or $1,166 in today’s dollars). Inflation and the relative cost of child care have eaten away at the size of that credit, which has not been expanded since 2001 except for a pandemic-related boost.

I’ve long argued that the CDCTC should be thought of as a school-choice program for early childhood care. Just like states are starting to give parents public vouchers to use towards the cost of a K-12 school of parents’ choice, a CDCTC payment could help to offset the cost of a parent’s choice for an early childhood care provider, be it to help pay for a nanny or center-based care or faith-based Mom’s Day Out program, whether full-time, part-time, or something in between.

There are still ways the credit can be improved, such as being made larger and refundable, distributed in a timelier manner, and paired with reform to child care regulation. In wilder moments, I’ve proposed that the entirety of the CTC be converted into the CDCTC to be used as a $10,000 educational voucher given every year for the first five years of a child’s life. (For families not requiring child care in the early years, these funds could apply to homeschool materials, tutoring, private primary and secondary school, or college.)

But the expansion is a step in the right direction — thanks in large part to the bipartisan leadership of senators Katie Britt, Republican of Alabama, and Tim Kaine, Democrat of Virginia.

But wait, there’s more. The OBBBA made permanent a temporary credit for paid leave passed by a Republican Congress in 2017. This credit partially offsets costs to companies that provide paid family and medical leave (45S) and allows it to be applied against insurance premiums.

There’s no question that greater access to paid leave would result in improved health and economic outcomes for parents and children, especially with regard to childbirth. The criticisms of 45S are similar to those levied against the aforementioned 45F; namely that tax credits to companies providing paid leave end up rewarding the companies already providing it — and that take-up has been de minimis. This is a real concern, given that most workers do not have access to a paid family leave policy.

My preference would be that paid leave support be given directly to parents, not employers. We should be detangling such benefits from employment, not piling on — particularly with work shifting to the gig economy, jobs threatened by artificial intelligence, and the preference of many parents for part-time work. Moreover, a recent NBER study points to the societal benefits from a four-week universal paid parental leave program: It would cost $2 billion a year and generate a whopping $55 billion in net societal returns. The OBBBA didn’t pinch pennies on nearly anything else, so why skimp on support for parents and their new babies?

But zooming out from the specifics, it’s shocking to take a step back to see that it is Republicans who have achieved the most significant concrete changes to family policy in recent memory.

Relative to BBB, it’s the OBBBA that got the last laugh when it comes to family policy.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Abby McCloskey is a columnist, podcast host, and consultant. She directed domestic policy on two presidential campaigns and was director of economic policy at the American Enterprise Institute.