Improving Access to Child Care and Preschool by Expanding Parental Options

Executive Summary and Introduction

• Many American parents are struggling to afford child care. The average cost of child care in the United States is more than $10,000 per child. In recent years, costs have risen faster than inflation.
• Government regulations drive up the cost of child care. While there is a public interest in ensuring children’s safety and well-being, many regulations, such as mandated teacher-to-child ratios, increase costs with little or no benefit for children.
• The federal government spends roughly $24 billion annually on the Head Start and Child Care and Development Fund programs, the largest federal early learning and child care programs.  
• The White House and Congress should consolidate and reform existing federal preschool and child care subsidies to give parents direct control of means-tested subsidies and to support a broad range of preschool and child care choices.
• In the short-term, the next White House and 119th Congress should take interim steps to expand choice, increase supply, and improve the value of preschool and child care subsidies. Moreover, Congress and the federal government should collect information about the factors that contribute to high child care costs.

Decisions about how to provide child care are among the most personal that working parents face, as they must find trustworthy, affordable, high-quality care for their children. For many parents, paying for child care is an essential expenditure in the family budget. In 2021, the average annual cost of child care in the United States was $10,600. In many communities, it is more expensive to pay for child care for two children than to pay for housing. Child care costs have risen faster than inflation, and the declining supply of child care providers across the country contributes to parents’ challenges finding care for their children, and this is especially true for parents earning below the median income level. 

Several factors affect the cost of child care. Regulations drive up costs and reduce supply. “Regulations require minimum teacher-to-child ratios, which drive up costs; but providers cannot easily pass on those costs to parents who are already struggling to provide care,” explained Washington Post columnist Catherine Rampell. In 2015, Mercatus Center researchers estimated that modestly relaxing child-to-staff requirements—which do not necessarily improve the quality of care—could reduce the cost of care nationwide “by between $850 to $1,890 per child.” An Independent Women’s Forum and Heritage Foundation analysis of government child care regulations found that “many of the regulations imposed on child care centers and family-care providers go far beyond ensuring safety and well being; they are prescriptive and limiting for facilities.” 

Other factors include the tight labor market and the relatively low pay of child care providers. According to the Bureau of Labor Statistics (BLS), the median pay for child care workers was $14.60  per hour or $30,370 per year in 2023. BLS projects a one percent decline in the number of child care workers over the next decade with more than 162,000 job openings expected annually during that period. A Massachusetts provider recently described her challenge to hire workers at $15 per hour when retailers like Home Depot and Walmart were paying about $20 per hour. The child care sector experienced a sharp decline in jobs during the pandemic, with employment only recovering to 2020 levels in 2023. 

The federal government subsidizes child care for American families through several programs and the Child and Dependent Care Tax Credit. The main programs are Head Start, which received approximately $12 billion in FY2023, and the Child Care and Development Fund, which received $11.7 billion last year. 

Nevertheless, the Biden administration attempted to increase federal subsidies for preschool and child care. The administration proposed establishing a “Birth Through Three Child Care and Early Learning Entitlement” that would have dramatically expanded federal spending on public child care and preschool services. In 2021, congressional scorekeepers estimated the proposed entitlement would cost  $273 billion over 10 years. The new rules proposed for the child care market would have disrupted the existing one. This proposal was not enacted, but it demonstrates the interest among leading Democrats to expand the federal role and authority over child care. 

The Biden administration provided $24 billion in subsidies for child care providers through the American Rescue Plan’s Child Care Stabilization Fund. The American Rescue Plan also provided an additional $15 billion for the Child Care and Development Fund (CCDF). The Department of Health and Human Services (HHS) estimates 9.6 million children benefited from this assistance to nearly 96,000 child care centers and approximately 124,000 family home providers. The amount awarded to centers and family home providers averaged roughly $141,000 and $23,000 respectively. The fund expired in September 2023. 

In addition to these subsidies, the Biden administration and Congress have approved new flexibility options for Department of Defense (DOD) personnel, allowing parents to choose in-home child care options—including nannies—using federal benefits. At least when it comes to DOD personnel, federal policymakers recognize the benefit of giving parents’ more choices for child care. The DOD program’s rules require that providers must meet basic guidelines—including to be an adult, to speak English, and hold a high school diploma—to pass a background check, and to take 32 hours of basic child care training. The DOD’s new child care program puts parents in charge of finding the right child care provider for their children. This approach should be a model for Congress and the next administration as they consider federal child care programs.

In 2025, the White House and Congress should reform existing federal child care and early education programs to provide more and better options for working parents without increasing onerous federal regulation.

Head Start 

Since 1965, Head Start has been a prong of the nation’s bipartisan strategy to promote equal opportunity in education. Head Start centers provide child care and other services to eligible low-income families for children from birth through age 5. In 2021, American taxpayers spent more than $10 billion on Head Start programs that provided services for approximately 840,000 children and their parents. This amounts to more than $12,000 per beneficiary. Unfortunately, the federal Head Start program has proven ineffective in several ways. 

For example, in 1998, Congress mandated a national evaluation of the Head Start program, after the  Government Accountability Office testified that “little is known…about whether the program has achieved its goals.” In 2012, after long delays and pressure from Congress, HHS revealed the final results of the evaluation. The report found: 

“In summary, there were initial positive impacts from having access to Head Start, but by the end of 3rd grade there were very few impacts found for either cohort in any of the four domains of cognitive, social-emotional, health and parenting practices. The few impacts that were found did not show a clear pattern of favorable or unfavorable impacts for children.”

In other words, by third grade, children who attended Head Start were no better off than children who did not.

Federal watchdogs have also identified safety risks in the Head Start program. In 2020 GAO issued a report examining the safety of the drinking water at federally funded child care facilities. The auditors surveyed 762 Head Start centers and found that “an estimated 43 percent of Head Start centers had not tested their drinking water for lead in late 2018 or 2019, and 31 percent did not know whether they had tested, according to GAO’s nationwide survey.” Among the 26 percent of Head Start centers that had tested in the past year, 10 percent reported finding the presence of lead in the drinking water. Based on this rate, it’s reasonable to assume that at least 50 of the 762 Head Start centers probably have lead in their water but haven’t tested for it. That’s a serious problem for all children at risk. According to GAO, “Young children are particularly at risk of experiencing the adverse effects of lead exposure from a variety of sources, including drinking water.”

The Head Start program has also been found to provide inefficient child care. The national evaluation noted that children who did not go to Head Start but did attend preschool or child care received four or five more hours of care per week than their peers enrolled in Head Start. At the time, Head Start only required that centers provide a minimum of 448 hours of care per year—or 3.5 hours a day for 128 days per year. By comparison, the average K-12 public school calendar is 180 days and 6.64 hours per day, or nearly 1,200 hours per year.

In 2016, the Obama administration attempted to reform Head Start through rulemaking, including increasing its minimum hours to more closely match the traditional school year. The administration’s proposed Head Start Performance Standards would have required providers to offer 1,020 hours of care per year. At the time, the administration explained that children receiving the minimum 448 hours of Head Start preschool “receive less than half of the early learning services that children in some state-funded pre-kindergarten programs receive, and substantially less than children served in the highest impact early childhood education programs.” In 2019, the Trump HHS withdrew the mandate to extend the minimum hours of care. As of 2023, 15 percent of center-based Head Start preschool programs were providing less than 1,020 hours of care.

The next administration should revisit this rule and consider ways to make Head Start a better value for working parents. As of 2019, the per-child cost of the part-time Head Start program was more than the average cost of full-time child care for a 4-year-old in 37 states. While the National Head Start Association strongly opposed the Obama administration’s proposed expansion, arguing that it would lead to 126,000 fewer children enrolled and 9,400 teachers’ jobs lost, it’s unclear why Head Start centers spend more per child than many full-time child care providers but offer substantially fewer hours of care. Simply increasing the number of hours provided by Head Start to the 1,020 that the Obama administration proposed would allow many working parents to work an additional 572 hours per year, or roughly 14 weeks of work, which could significantly increase household earnings. Despite the National Head Start Association’s claims, it is unclear why Head Start centers would be unable to provide more hours of care, since Head Start receives more funding per-child than the cost of full time child care in many states. In addition, Head Start center providers could expand their services to provide care for children who are not eligible for Head Start services by charging fees for their care. According to Head Start’s performance guidelines, “a program may charge fees to private pay families and other non-Head Start enrolled families to the extent allowed by any other applicable federal, state, or local funding sources.” Given the rising cost and limited supply of child care services, expanding Head Start centers to provide more hours of care and to enroll children whose parents can afford to pay could benefit enrolled children and parents who are seeking new child care options for their kids. 

However, a comprehensive reform to give Head Start families direct control of funding through an account or to shift funding from Head Start to the Child Care and Development Fund, discussed below, would give low-income parents more options for finding the best preschool and child care services for their children. 

The Child Care and Development Fund 

The federal government subsidizes child care through the Child Care and Development Fund, which received $11.7 billion in 2023. According to HHS, the CCDF program—which serves approximately 1.4 million children— “emphasizes parental choice,” and allows children to be “cared for in a wide variety of settings.” As of 2019, 75 percent of children receiving subsidies attend a child care center, 20 percent were in a family child care home setting, and two percent received care in their own home. Importantly, the CCDF program focuses on providing child care subsidies to low-income families. As of 2019, 40 percent of beneficiary families had incomes below the federal poverty level.

Future efforts to expand access to child care for working families could simply expand the CCDF program. Expansion makes more sense than creating a new child care entitlement and regulating child care providers out of existence. Moreover, Congress should also require HHS to improve its oversight of the CCDF program, which has been susceptible to improper payments and other integrity risks. Improving oversight would ensure that taxpayer funds are used appropriately to benefit disadvantaged children.

The Child and Dependent Care Tax Credit

Federal law also allows parents to deduct certain child care expenses from their income taxes through the Child and Dependent Care Tax Credit (CDCTC). In general, parents can claim up to $3,000 in expenses for one child or $6,000 for two children. Parents must use the credit for working expenses and must only deduct the credit against earned income. Filers with earned income can take a 35 percent tax credit if their income is below $15,000. The percentage that can be deducted is reduced on a sliding scale for those earning between $15,000 and $43,000 with the tax credit capped at 20 percent for those earning above $43,000, according to the IRS. Eligible expenses that qualify for the tax credit include center-based care or nannies, nursery school, or after school care for children who are kindergarten-age or older. According to the Congressional Research Service, American taxpayers used $3.8 billion of these tax credits as of FY2018. 

This tax credit helps working parents pay for child care services, but some experts have argued that this benefit unfairly penalizes stay-at-home parents. For example, a 2021 Republican Joint Economic Committee report described the CDCTC as “biased toward the needs of dual-earner families that use formal care” and recommended that it be reformed “to ensure that families with a stay-at-home parent, families that do not utilize formal child care arrangements like center-based cares, and families that prefer to allocate income toward other aspects of care (including diapers, formula, educational resources, etc.) are not disadvantaged.” In a future tax bill, Congress should modify this tax credit to allow parents who choose not to seek formal care for their children by allowing funding to also be spent on education costs, including tutoring, enrichment, and school tuition, to avoid penalizing parents who choose to care for their children. 

Improving access, affordability, and transparency 

Altogether, the federal government spends more than $25 billion annually on Head Start, the CCDF, and the CDCTC. If federal policymakers were designing a new federal child care and early education benefit program from scratch, it would be possible to design a more effective policy mechanism for subsidizing preschool and child care. For example, the White House and Congress could simply establish a child care and education spending account program, which could distribute subsidies based on parental income. Parents could be authorized to spend funds provided in the account on a broad range of services, including child care, preschool, and related expenditures, with fund expenditures subjected to risk-based auditing to prevent misspending.  In the long-term, federal policymakers could work towards this goal of a more efficient and equitable distribution of federal child care subsidies. 

In 2025, the White House and Congress should take actions to expand child care access and affordability, improve transparency about child care supply and issues that reduce access and affordability, and reauthorize key federal child care programs to improve their quality for lower-income parents and children. 

Recommendations 

Executive Action 1: The White House should reissue the Obama administration’s rule increasing Head Start’s required minimum number of hours of care provided and encourage providers to offer services to non-eligible children whose parents can afford to pay fees for care. 

Increasing the number of hours of child care provided by Head Start centers would be a simple and effective way to address child care affordability for low-income families. As discussed above, Head Start spends more per-child than the cost of full time child care in many states. Head Start centers should be able to provide a similar amount of care that full time child care centers provide. Expanding the hours of care would allow low-income children to receive additional care and allow working parents to work and earn more to provide for their families. To help Head Start centers expand their services, HHS could issue policy guidance encouraging providers to accept fee-paying customers whose children are not eligible for Head Start. 

Executive Action 2: Prioritize new child care funding for the Child Care and Development Fund 

The White House should maintain the Child Care and Development Fund as the core program for providing child care subsidies for lower-income families. The White House should propose a legislative reform to transfer funding from less effective child care programs like Head Start to the Child Care and Development Fund, since that program offers families broad choices to find the right care provider for their children. While Congress may be reluctant to transfer Head Start subsidies into the more effective CCDF program, the White House should prioritize the program that provides parents with the maximum range of choices.

Executive Action 3: HHS should collect information to improve public understanding about issues affecting child care supply and affordability, including regulations of child care providers. 

The current debate about the supply and affordability of child care services is based on an incomplete understanding of the supply and affordability of services. For example, the recent expiration of the “child care cliff”—or $24 billion in funding made available through the American Rescue Plan of 2021—caused some experts to warn that services will be eliminated for three million children, while others predict that the disruption will be far less significant. It is reasonable to expect that reduction in funding for child care centers could cause some providers to close, particularly given the tight labor market and relatively low pay provided to child care workers. HHS could improve transparency by conducting surveys of child care supply and affordability in communities across the country. HHS should also analyze issues that affect the supply and affordability of child care services, including labor market shortages, public subsidies for child care, and regulations. HHS should publish an analysis of state child care regulations to better understand how different states are regulating the sector—including the types of regulations such as staff-to-child ratios— and how these affect supply. This information could enable more effective reforms to improve child care access and affordability. 

Executive Action 4: The White House should require the Department of Defense to report on its in-home child care pilot program to identify best practices for other government preschool programs.

As a sponsor of child care for more than 160,000 children, the Defense Department is one of the largest providers of child care in the United States. The federal government has an opportunity to learn from DOD’s pilot program to support the use of in-home child care services as a strategy for promoting more parental options. Identifying lessons learned and best practices from this project could inform other federal and state initiatives to expand child care access. 

Congressional Action 1: Congress should reform the Head Start program and expand parental choice options by establishing Head Start accounts.

Congress last reauthorized the Head Start program in 2007. This was five years before HHS published the final evaluation that revealed that by third grade any discernible benefits to Head Start children had disappeared entirely. Congress should hold hearings, conduct oversight, and take legislative action to reform the Head Start program to ensure that it provides better value and services to economically disadvantaged children and their parents. For example, Congress could reform Head Start to expand parental choice options, such as by establishing Head Start Accounts to provide direct funding to low-income families to pay for child care, preschool, and related services. This approach to reforming Head Start could involve providing transition subsidies to current Head Start providers to allow them to transition into independent fee-based child care centers that receive payments from Head Start Account holders and other parents seeking preschool and child care services for their children. Alternatively, the Head Start program could be consolidated with the Child Care and Development Fund to provide direct subsidies to lower-income parents while allowing broad choice over how those funds are used.

Congressional Action 2: Congress should conduct oversight and collect data to better understand issues affecting child care supply and quality. 

While HHS should collect and report information, Congress could also conduct oversight of child care supply and affordability to improve transparency and public understanding. For example, Congress should direct the Government Accountability Office to conduct a comprehensive review of federal child care programs and survey child care supply and affordability in communities across the country. The House Education and Workforce and the Senate Health, Education, Labor and Pensions committees should conduct fact-finding oversight of issues affecting child care supply, including government regulations. This information would help lawmakers better understand what public policy reforms are needed to improve access and affordability. 

Congressional Action 3: Congress should update tax policies to better assist parents to pay for child care and educational costs. 

As Congress considers tax reform in 2025 with the expiration of the 2017 tax law, lawmakers should review current tax benefits for children, including the Child and Dependent Care Tax Credit. For example, Congress could expand the allowable uses of the Child and Dependent Care Tax Credit to include additional education-related expenses.

Conclusion

Paying for child care comprises a significant and growing share of working parents’ budgets. The federal government has been subsidizing child care and early education benefits for lower-income families for more than a half century. But the Head Start program has been proven to provide insufficient benefits for participating children and currently offers limited child care hours for many children. In other words, a core federal preschool program that spends more than $12,000 per child per year has proven ineffective in boosting disadvantaged children’s long term educational performance while simultaneously providing less child care compared to other preschool programs. In other federal programs, including the Child Care and Development Fund, the Child and Dependent Care Tax Credit, and in the Department of Defense’s subsidized child care program, federal benefits are structured to provide families with a broader choice of how to use federal benefits to find the best child care setting for their children. In 2025, the White House and Congress should take steps to further expand parental choices to improve affordability and quality, while also improving transparency about the supply and affordability of child care services in the United States.