WASHINGTON, D.C. – Today, U.S. Senators Angus King (I-Maine) and Richard Burr (R-N.C.) joined forces to introduce the Promoting Affordable Childcare for Everyone (PACE) Act, legislation that merges two previous bills they introduced that would improve the major federal tax policies that help make childcare more affordable for families across the country.

“Childcare is becomingly increasingly more difficult for families to afford, and that’s not only bad for them, it’s bad for the economy,” Senator King said. “We need to ensure that our tax policies keep pace with rising childcare costs and that working families have the support they need to stay on the job. The PACE Act merges two sensible approaches to current policy and will ensure that fewer American families have to make the impossible and unfair choice between childcare and their jobs.”

“Affordable, reliable child care is one of the greatest challenges that many working families face,” said Senator Burr. “I’m glad we can come together to expand affordable child care options for parents who are working to build a better future for their children. I fought hard to improve child care and to make it more affordable for working families with the Child Care and Development Block Grant Law of 2014. But as any parent can tell you, we've got more to do. Parents need safe, affordable child care. And this bill has the added benefit of helping families who need a caregiver for their aging parents.”

For too many families, the cost of childcare can make it difficult to maintain employment and make ends meet. In nearly half of the country, the annual cost of full-time childcare for a 4-year old is greater than the average cost of in-state tuition at a 4-year college or university. Those pressures are felt most by low-wage workers who spend on average more than 30 percent of their income on childcare.

While the federal government provides two significant tax benefits to help offset childcare costs – the Child and Dependent Care Tax Credit (CDCTC) and Dependent Care Flexible Spending Accounts (FSAs) – they are both in need of an update.  For example, neither policies have kept pace with inflation, meaning they have become less useful over time as the cost of childcare increases. 

The Promoting Affordable Childcare for Everyone (PACE) Act – which combines the Access to Childcare Expansion (ACE) Act Senator King introduced yesterday and Senator Burr’s Child and Dependent Care FSA Enhancement Act to create a strong, bipartisan bill – would enact several changes to make both tax policies immediately more generous and modify them to reflect the changing economic landscape by requiring an annual inflation adjustments that will provide families with greater spending power when seeking care for their children. Because both tax provisions affect care for the elderly and individuals with disabilities, those enhanced benefits will extend to them as well.

More specifically the Promoting Affordable Childcare for Everyone Act would:

1. Modernize the Child and Dependent Care Tax Credit by:

• Making the credit refundable in order to expand the credit’s reach to low-income working parents.
• Increase the value of the credit by raising the credit rate for families of all income levels and creating a new top credit rate of 50 percent that phases down to 35 percent for higher-income families in order to expand the reach of the credit and put more money back into the pockets of working parents.
• Indexing the credit to inflation to ensure the value of the credit will not be eroded over time by rising childcare costs, but instead, will remain at a sufficient level to help make costs more affordable.

1. Enhance Dependent Care Flexible Spend Accounts (FSAs) by:

• Increasing the amount of pre-tax dollars families can put into these accounts from $5,000 to $7,500. This exclusion from gross income allows families to save money on income and FICA taxes, and the PACE Act’s increase means those savings will go even further than current law’s.
• Indexing the new cap to inflation so FSAs can keep pace with the cost of childcare. Because the current $5,000 cap is not indexed to inflation, families are falling further and further behind the rising cost of care.  By raising the cap to $7,500, and indexing that amount to inflation, the PACE Act ensures FSAs are reliably updated to keep steady a parent’s purchasing power for their child’s care. 

To read a copy of the legislation, click HERE.

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