Donald Trump's proposal to make all child care costs tax-deductible would boost the bottom line for wealthier parents, while delivering little benefit to working parents at the lower rungs of the income ladder.
In a speech repeatedly interrupted by protesters, the Republican presidential nominee on Thursday told an audience at the Detroit Economic Club that once he's in the White House, Americans will be able to "fully deduct the cost of child care spending from their taxes."
While Trump did not offer specifics, what sounds like an increase in the standard deduction for families with children won't help the lowest-income families, as they already don't owe federal income tax, said Elaine Maag, a senior research associate in the Urban-Brookings Tax Policy Center.
"If your income isn't high enough to owe taxes, excluding income from taxation doesn't change your situation at all."
If Trump's broader plan on taxes were enacted, 63 percent of households would not pay federal income taxes, up from the 43.9 percent that are currently exempt, Maag noted. Typically, people don't owe federal income tax because either their incomes are too low, or because they qualify for tax credits such as the Earned Income Tax Credit or Child Tax Credit, which reduce tax liability and in some cases results in a tax refund.
"Because it's a deduction, it's gong to miss the 44 percent of workers that don't pay federal income tax," said Hunter Blair, a tax and budget analyst at the Economic Policy Institute (EPI), a liberal-leaning think tank. "And, with tax deductions, the benefits rise with income, so it's a regressive plan."
About half of people who owe no federal income tax have income too low to owe taxes.
The upshot: Trump's plan would only help people that have income they can deduct. "The general notion with his child care proposal is there is probably less there than meets the eye," said William Gale, an economist with the Brookings Institution, a centrist think tank.
Given the current structure of who pays taxes and who gets credit, Trump's proposal would only help higher income households, he added. "It's certainly not going to benefit a family of four with $30,000 in income."
Another reason working families might not benefit much from Trump's child care proposal is that any tax benefits would come long after the services were paid for. That's likely to be of limited benefit to households on a budget who pay for child care on an ongoing basis.
"If you face budget constraints, it's very hard for the tax system to help with a monthly bill," said Maag, who noted that child care givers would be unlikely to accept waiting for months to be paid.
Although Democratic and Republican lawmakers remain divided on issues like individual income taxes, there is some bipartisan support for providing tax relief to low- and middle-income Americans. Proposals include expanding the Earned Income Tax Credit, which is aimed at working families that make less than $53,000 (depending on marital status and household size), and the Child Tax Credit, which also lets parents reduce their taxable income.
Although a move in Congress to expand child care subsidies might be a nonstarter, both Democrats and Republicans are talking about reducing poverty. "[C]hild care is a barrier to people going to work," Maag said.
The EPI's Blair called Democratic presidential nominee Hillary Clinton's plan to cap child care costs at 10 percent of a family's income through federal subsidies and tax breaks "a vastly better policy than the tax deduction that Trump is proposing."
But Clinton's plan is plagued by the same problems as any proposal delivered through the tax system, Maag said. "You get the benefit long after you incur the expense."