Episode 11: Vermont's Child Care Employer Tax, Japan's Child Care Policies, and Why Couldn't the Presidential Candidates Just Give a Straight Answer?

Welcome to Episode 11 of the Child Care Tax Break Breakdown podcast with hosts Greg and Doug! In this episode, they discuss the challenges of finding child care, the impact of child care shortages, and solutions implemented in Vermont and Japan.

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In Vermont, a new $125 million annual investment aims to stabilize the workforce, create a more affordable Vermont, and expand financial assistance eligibility for families. They discuss the funding source, a new payroll tax on employers, and the benefits it will bring to families and early childhood educators.

In Japan, a child rearing support fund financed by higher health insurance premiums is set to tackle declining birth rates. The allowance coverage will be extended, income limits removed, and benefits increased for parents and young carers.

The hosts also touch on the disappointing response to a question about child care at a presidential debate and the ongoing efforts of Moms First to advocate for child care issues.

Tune in to learn more about these important topics and stay informed about the latest developments in child care policy and support. Don't forget to like, share, and subscribe for more insightful discussions on child care tax breaks!

Chapters

• 0:02 Child Care Tax Credit Program Review
• 13:35 Child Care Funding and Support Trends

Transcript

Speaker 1: 0:02

Welcome to the Tax Break Breakdown with your hosts, greg and Doug. Sit back and relax while they review current and upcoming child care tax credit programs employers can take advantage of. Now on to the show.

Speaker 2: 0:16

Welcome everybody to Episode 11 of the Child Care Tax Break Breakdown with your hosts, greg and Doug. Episode 11, dougieie, we were at episode zero last year. I haven't calculated. I think we're going on about every two, three weeks. Three weeks, that's about right. It's been a good uh. It's been a good uh cadence for us. I know we tried early on to do weekly.

Speaker 1: 0:44

That's tough, there's enough like there's about out there, but wait like get some. Wait kids. You got, you got another one on the way here in what three weeks? That's. That's right, which I'm going through.

Speaker 2: 0:59

So, um, personal experience with child care, right, I have my three-year-, 13-year-old who goes to school, you know, full-time. She's going into eighth grade, the three-year-old. We're looking at preschools right now, both public, private and calling around. I mean it is a ton of work and I purposely did not use the resource I have now available. I'm going to use it, but I wanted to. I wanted to get a refresher, cause I've already done this, but I want to get a refresher for how hard it is.

Speaker 2: 1:28

Now, on the cost for preschool Now, from two days to three days, part, you know, like part-time and full-time, it is exactly what we've been saying. Um, so I've spent we spent like the whole last weekend that's probably eight at least eight hours just looking through, like first trying to figure out which ones we should even contact and, um, everybody's website is different. You can't really find tuition anywhere. I mean you have to like click into pdfs and then another pdf to like find some level of tuition, um, and then you have to like find some level of tuition, um, and then you have to call and they, they, they're not always open, um, every single day from some of them, like if we want to call it four o'clock, like they're gone, um, and then you're all wait lists. So the one that, uh, my family has gone to all seven kids. We called and we were like, hey, we got another one. But you're, there's like they have a family wait list and then they have a public wait list. So I wanted to go through that pain just to feel it. Um, and then now what I'm gonna do is I've, I've, we've narrowed it down to like the top six, seven, seven.

Speaker 2: 2:44

I'm now going to have our care navigator go to each of those and try to finalize, like, what is the final tuition? Do they even have spots? Can we set up a tour? Yeah, because managing that is just so much time. So these navigation programs are great for things like that. And I've also seen the other side of it where people have said, hey, here's five different schools, here's how much I'm paying today. Is there anything that's like less than what I'm paying today? Um, which is a that can, that can easily save. It's like switching to geico. You know, you can save like 10 to 15 pretty easily. Um, if you're, you know, okay, for maybe a different, uh, different area or a different style, but um, that's what I've been doing. So firsthand experience I know you had firsthand experience too. Yeah, it was the same thing you know we went through.

Speaker 1: 3:38

The first time was before, uh, I was in this space and it was a huge part of how we ended up connecting and I ended up in this space was how bad that experience was looking for daycare for rain for my youngest time, and then second time, use the navigation service and, like, found another daycare, putting like I don't know maybe 30 minutes of my own time into it before we went and toured, and that was that was it. We were locked in. So I mean massive time savings on that side of my own time into it before we went and toured, and that was that was it. We were locked in. So I mean massive time savings, uh, on that side. But yeah, does. It doesn't affect the cost, which is why we talk about all these other things. How can we bring the cost out?

Speaker 2: 4:16

and there's two uh. We're this episode. We're going to be going into some things that verm is doing, which is, I think, the highlight, is more employers If you don't do something, we're going to make you do something about it. That was Doug's uh. First, take on this Uh, and then we're going to talk a little bit about our international friends in Japan and what they're doing over there. I think that is a pretty interesting model that they're doing, but in Vermont they have recognized just like Japan has recognized and just as all these other states and federal three out of five young children lack access to quality child care, which they say they need, and just in Vermont, 10,600 additional childcare slots are needed. In Vermont, families spend up to 30% of their income on childcare, which I believe the federal government has said 7% is like where you should be. So they're at 30%. And they recognize that early childhood educators are unpaid. A medium wage for a full-time early childhood educator is 39 315 dollars in vermont I mean that's, it's worse here in kansas.

Speaker 1: 5:41

I know that for a fact, but yeah, it's slow. I mean they need the slots, right. You need the spaces to begin with, and that's before you even begin to address cost. And creating spaces isn't free or easy. So it seems to be looking at those three pillars that affect the underlying cause. What are they going to do about it?

Speaker 2: 6:08

So there is a bill 2023, child care bill it's. They say it's one hundred twenty five million dollar annual investment which starts next year, 2024. Which?

Speaker 1: 6:20

is this year.

Speaker 2: 6:21

The goal of it is underlying. It's to stabilize the workforce, the economy, create a more affordable Vermont, but, um, what it does for families, and then I'll I'll share a little bit about what it does for families and then, if you want, to share a little bit about where's this money actually coming from. But they want to expand the financial assistance eligibility. They have a program and we talk a lot about acronyms, but in Vermont it's the CCFAP. So what they're saying is, by the end of 2024, families that earn up to 575% of the federal poverty level will be eligible, which they estimate puts 7,000 more families to qualify for assistance. And the assistance will go towards helping with all things related to kiddos, um, better support for children with special needs, improved quality and access to child care, and so this is through um, an assistant, an assistance program and financial assistance, specifically through through the uh, vermont government essentially an expression of the state subsidy program yeah, which is a great model.

Speaker 2: 7:31

Now, um, the question then always becomes how is that paid for? And we've seen states do it many different ways and you know, foreshadowing, japan thought about it a different way. But but where does this money come from, doug?

Speaker 1: 7:47

Well, it looks like and this is definitely 4th of July coded as we talk about taxation. This is a new tax, a new payroll tax actually put on to employers, and so it is a 0.44% payroll tax called the childcare contribution payroll tax. It can be either fully funded by the employer or a quarter of it, or 0.11% can be shifted off onto the employee and it's going to come from payroll uh, just as as many other programs are funded. But this is why I think I said earlier and you echoed uh, if employers aren't going to do something, that money may be coming out of their pockets anyway. Um, and so there's definitely an opportunity for employers to take the reins, uh, as we've seen in some other states with some of these programs.

Speaker 1: 8:47

So the partners we've worked with, but yeah, so if they did shift the costs onto employees, it'd be like about a third of a percent would come from the employers and 0.11% coming from the employee. Self-employed individuals would only pay the 0.11%, so they don't get hit with the full amount. But it's an interesting law, right? I mean, it's like you have to find the funding somewhere. The idea is definitely tied to economic value and stability, and especially around the workforce, and especially around the workforce. So there's a very distinctive tie to the employer and employee relationship in supporting childcare expansion. I get where it comes from. I worry about efficiency with it.

Speaker 2: 9:36

Yes, obviously the collection is going to be easy. Yep, the distribution and the tracking of the impact might be hard, but we could put some quick, quick numbers to perspective. If a employee makes $100,000, this is going to cost companies $440. So if you have a weekly pay cycle 52 weeks about $8.50 per employee per month, uh, per pay cycle 52. So it's like 16 bucks a month, um, and they said you can, as you can, pass some of that along. So, uh, the 0.11, so 0.44 is divided out between 0.33 for employers, 0.11 for employees, or the employer can pay it all. So, um, for the employee, though, that would be about 110 a year. So an additional about two dollars and something cents per per week.

Speaker 2: 10:36

So you're looking at like four dollars off of your paycheck, so it doesn't seem like much. But then, you know, factor in all the other, like fika and medicare, like all these other ones that are just creeping up a little bit more, so it doesn't like when you do a hundred thousand dollars, it doesn't like it's not, it's not extreme, um, but it's still creeping. The tax rates are creeping, um, but I think this one they realize, like if employers don't actually end up stepping up, then they're going to do something about it and they they weren't like, specifically clear on the exact. This're going to do something about it and they weren't specifically clear on the exact. This is going to help reduce absenteeism and turnover. It's more of just hey. The bill aims to solve this widespread issue with child care shortages that affects employees' availability. It should reduce instances where employees are leaving the workforce because of lack of child care, and then it may ease scheduling difficulties for child care.

Speaker 1: 11:36

I mean we tend to deal with like very hyper-focused programs. This is taking it at a broad brush across the state. Right, you take this money from all employers, use it to fund stability in the supply, trying to expand the state subsidy program, get more families financial assistance. It makes sense At a broader level. It's going to take time, I think, to see the impact of it, but certainly, I think, targeting the right things and there are some things in there directly to focus on helping the educators, which is something we haven't talked a ton about with this, but, like some money does go towards setting minimum pay standards in that space, increase, increase compensation and benefits on that side and some additional training and resources. So you know, as a holistic structure from a, from a state institution level, definitely could see that being, you know, a massive benefit in the state of Vermont.

Speaker 2: 12:37

Yeah, it also helps. Uh, I know that they're updating their reimbursements rates. So if you have a childcare program and there's increased reimbursement rates, they mentioned a $20 million in readiness payments that should have started in summer 2023. And one of the things that it wanted to help shift was from attendance-based to enrollment-based, which I think is interesting. I wonder how. I mean, I kind of know how they do it today. Enrollment-based would be easier, but I wonder if there's like the tracking that it takes to get paid off of attendance, like if someone shows up only for an hour, versus they're enrolled at the space. I think I'd probably want to dig into a little bit more about that and what we think the impact's going to be.

Speaker 1: 13:35

Yeah, I mean, I think the, I mean generally, the reason why attendance space is there is it's like we're only going to reimburse for, like, what's actually utilized, right, but that, like A, becomes onerous to track B, right, it just introduces so much inefficiency into the system because it's detrimental sometimes now for providers to want to take those spaces on because maybe a family can't get there one day, right, and all of a sudden you're not getting paid for that. It's reducing the income of the child care provider. And so it's where we've seen across the country, right, like, so many providers don't want to accept, like, subsidy or voucher type slots, uh, because of some of the tracking there. So that to me is eminently positive. Could there be some abuse of it? Sure, um, but I'm always going to be of the mind that that is going to be negligible compared to the inefficiency we introduced by, like you know, onerous tracking or or any type of like really heavy means dusting that we see with so many of these programs.

Speaker 2: 14:40

The um. Just the ability for, I think, uh a program to have consistent revenue, uh, I think will help them be able to plan more right in the future. So if they know that it's not going to fluctuate, based off of daily attendance, uh, I think that's going to really help that foundational just. You know the the. Should we hire another for next year? We'd like, uh, not next year, even like next month. You know the the. Should we hire another for next year? We'd like not next year, even like next month, next quarter. Yep, now they have a better consistent revenue which then tie that back with all the other things that are happening. Increased compensation to bring more educators back. I think that's a definitely a root cause that they've identified and I think would be. I'm really interested to see what happens.

Speaker 1: 15:28

Yeah, no, yeah. The impact on on space. Like the space is available, I think it'd be fascinating, so I need to let it play out, but it could, could. It could definitely help with expanding supply.

Speaker 2: 15:38

For all of those reasons, there was an example that I put together that said uh, let's say a program has 50 children and they get 200 per child per month. So if it was attendance based, let's say a program has 50 children and they get $200 per child per month. So if it was attendance-based, let's say attendance fluctuates 80%, so the provider receives 50 times 80% of 200, which is 8,000. If it's enrollment-based, it's 50 times 200, so they get 10,000. Right, so that extra 2,000 in just this example, it's substantial. So that extra $2,000 in just this example, it's substantial. The implementation timeline that we've seen is summer 2023. That was the first round of stabilization funds. January, a 35% increase in state reimbursements. April, they expanded the eligibility In July. This month, additional reimbursements for home-based programs and a payroll tax begins In.

Speaker 2: 16:29

October further expansion of the financial assistance eligibility. So that was the timeline that they had proposed. And then the bill also and the program also is going to consider and I know a lot of states are doing this exploring expanding the universal pre-K from 10 hours per week to full-day program for four-year-olds.

Speaker 1: 16:48

Okay, um, they've still got 10 out a week now. Yeah, I mean it's. I mean I think that's obviously a huge push. We've seen, you know, even federally, looking at universal pre-k. I mean at some point it's, it's gonna have to happen, um, because it definitely cuts into it significantly. But no, it'd be interesting to see play out um. But yeah, I mean, the big thing I took from it was the initial thing is like, hey, like if we don't start solving this at the state level, like states are going to be forced to act, right, I think, in this way. So I think they're a bit ahead of the curve on this. You know, again, concerns with efficiency, with programs like this. We know state subsidy programs have their challenges, especially around reimbursement. State subsidy programs have their challenges, especially around reimbursement. But they are thinking about some of the right things right between the, the enrollment based, uh, reimbursements, stuff like that I think makes a huge difference in getting things in as we speak, my three-year-old I.

Speaker 2: 17:46

I usually don't lock the door, but I did and she just here. I'm wanting to come in.

Speaker 1: 17:51

I know, I I.

Speaker 2: 17:56

I love when she comes in. Oh, oh, they, I did not come in yet. Um, let's switch over to our international friends in Japan. We are not alone. This is not just a U? S problem. So Japan started to enact a care law to tackle declining birth rate, and so the parliament enacted a law to expand child care allowances, like a subsidy program and parental leave, so that they could tackle this and then promote um. Burden sharing is really the ultimate, because they've seen that a lot of the younger kids aren't taken care of, don't want to either raise kiddos, the expense, the climate of whatever's happening, and so they. Everything comes back to funding source, which you talked about, the Vermont one. So why don't you talk about how they're doing their funding sources or how they're thinking about it?

Speaker 1: 18:59

Yeah, and so by no means pretend to be an expert in the Japanese health care system. But starting in the fiscal year of 26, there's going to be a new child rearing support fund. It's going to be financed by higher monthly health insurance premiums, which, as an American, we should all be used to. We get higher health insurance premiums every year. Only we tend to get less things with an increased cost. We're actually going to get something more for this increased cost, which is the attempt to collect about the equivalent of $4 billion, 600 billion yen in 2026, increasing to 1 trillion by 2028. And that's where the money is going to come from for this program, and people are going to contribute very based on income and their public medical insurance level, with estimated monthly increases ranging from 50 yen all the way up to about a little over 1500 yen per person. So they're doing it through their state health insurance premiums.

Speaker 1: 20:08

Obviously, we do that privately here, much to my chagrin on a lot of levels. But an interesting mechanism here much to my chagrin on a lot of levels, but an interesting mechanism here, right, I've had really close friends who've worked in the health insurance space. In this country we talk about community determinants of health right and how childcare affects health across the country and working on that angle too. So definitely see the connection and you know working on that angle too, so definitely see the connection and where that could come from. Um, but really it comes down to now. What are they going to do with that, greg?

Speaker 2: 20:42

uh, well, I was also just reading, as you were talking, just the, the sheer, the, the decline in the in 2023. The number of bursts fell, uh to a record low of 758,631 in 2023, which is number of births fell, uh to a record low of 750,000, six, 31 in 2023, which is a 5.1% decrease. The annual figure has remained below 800,000 since 2022. So 5% decrease. If that keeps going, that's this is going to be tough for a while now.

Speaker 1: 21:12

Yeah.

Speaker 2: 21:13

And so the this allowance, um, it's going to be tough for a while now. Yeah, and so the this allowance, um, it's going to cover child. It says child care allowance coverage will be extended from up to age 15 to 18 and the income limit for parents and guardians will be removed. Monthly allowances for third or subsequent children will be doubled to 30,000 yen starting in October. Other benefits they do have parental leave and daycare expansion, and then support for young carers. So they increased the benefits will be provided for parents taking child care leave. Daycare services will be expanded to include children, regardless of their parent employment status. And then again they have a section in it that's the young carers who are looking after family members. So the goal is to eliminate regional disparities in assistance, and so this has been urgent.

Speaker 2: 22:12

It's becoming more and more urgent to the japanese government and um yeah go ahead.

Speaker 1: 22:20

I was gonna say it's an acute crisis there, but there's two things that I think, like really speak to me right, and that's the. That's the age limit right, it's going from 15 to 18, right, I mean you look at a lot of the programs and the way things are looked at, uh, here, right, I mean that's, if you could have anything, you can go up to age 15 right in the us, like it would, it would be amazing, obviously, going all the way to 18. So it's very broad, right. And supporting through the entire, like your, your expenses yes, they do go down as children get older, as we've seen with with our older kids. But when you're talking about incentivizing people, right, or helping people stabilize, wanting to have families, larger families, like, yeah, the cost of having children I know feeding a 13-year-old boy is not a cheap thing and I'm doing that every single week right, like he eats daily, daily, to be fair um, but you know like I mean, that's a lot.

Speaker 1: 23:21

And then the other thing here which is, you know, hot button for me is completely eliminating means testing. Right, no income limits, right, just do it. Um, and you want to incentivize and it's always such a hard thing, I think. Think whenever we see these programs, it's right. Well, we don't like the wrong people to get it or people that don't need it, and, yes, there's different levels of lifestyle comfort income. To me, the burden of instituting means testing is always going to be greater than the cost of doing it and the impact of doing it holistically, across the board. And like you don't create clips, you don't do things like this. It makes so much more sense to me. I know it's an over simplistic view of it, but like fascinated to see those two things in there. Um and uh, obviously would be an amazing thing to to potentially see. You know, maybe one day mimicked here and maybe we don't have to increase our health insurance premiums anymore to do it.

Speaker 1: 24:17

It'll probably be both the tax and the health insurance premiums are going up anyway, so that's going to happen regardless which, if that happened?

Speaker 2: 24:27

there's nothing positive, that'd be great. Well, you know, our employment this month actually started contributing more to family health insurance for us. So this month the health premiums for us personally have gone down because, same reason, we work for a child care company. So helping families is important and much appreciated for that. What else, doug? Anything else? I think those are two really interesting things that are happening Vermont, japan, different ways of people doing things, but it's showing that people are either doing things on their own, from a state perspective, doing things as a country perspective and that's why we're here is because these models are coming up left and right. Um, for both of these, I got like these articles in like the last couple of weeks and I was like these are, these are two things we definitely need to talk about.

Speaker 1: 25:25

I think I think one more thing. Um, our friends at moms first right Read a petition right To get a question asked about the rising cost of childcare at the presidential debate, and I don't know what your reaction was. So, first of all, the support was overwhelming enough to get the question in right, which is amazing in itself. That is not an easy thing to accomplish, and a ton of credit to the folks at at moms first and everybody else who supported that. What happened after that was so embarrassing. Um, not not not surprising, given that the cadence of the entirety of whatever that was. But uh, we listened to, um, uh to there's like 10 minutes.

Speaker 1: 26:15

It was like a 10 minute response ran about golf, right, it was like didn't even touch on it, and it's just so disappointing and I think, um, uh, we hadn't really. Obviously it was a ways back right. And just thinking about this and looking at what japan's doing and attracting it, attacking it there, um, just kind of reframe that for me. Just how embarrassing that was to finally get that engine on that stage and have that be the response I know I can't say I'm surprised, but like just, we have to be better than that.

Speaker 1: 26:50

Just just well I think there were.

Speaker 2: 26:51

There were also some, um, pretty low-hanging fruit of what they've already done, I mean the chips act. They could have just been like chips act is something we required, that if any chip manufacturer wants funding from us, they have to do something with child care like they did. That it's also baked into a couple more um legislation that's happening like there's already things that have been done. Just you could have like recapped those yeah, I know it was it was.

Speaker 2: 27:22

It was ridiculous, great, like you mentioned that, the um that it got on there, but 10 minutes of just back and forth was just like. That is where we're at, unfortunately, um, but that also won't stop mons first. It's not going to stop us, nope, um and uh and the state level either.

Speaker 1: 27:41

I mean, there's a lot happening at the state level and, and you know, I think that's where the ground swell is going to be. It's why we track it and we're seeing the traction. Obviously there's some federal stuff working through. But yeah, that was. Yeah, I just remembered that. I was like that was awful.

Speaker 2: 27:56

It was Well, let's end on a positive note. Moms first, we'll keep going. We're going to keep going. Thank you for listening to episode 11 of the Child Care Tax Break Breakdown. Cue the music and we're out, and we're out and we're out.