To pay for child care, state senators propose killing child tax credit

To pay for another expansion of the social safety net, Democrats in the Vermont Senate are proposing axing an anti-poverty benefit they only just created last year.

The tax-writing Senate Finance Committee on Wednesday evening advanced an amended version of S.56, the session’s major child care bill, with a financing mechanism. All five Democrats present voted in favor, while the lone Republican on the committee, Sen. Randy Brock of Franklin County, voted against. (Sen. Mark MacDonald, D-Orange, was absent.)

To fund the bulk of the price tag, lawmakers are leaning on a payroll tax. But to bring down the cost of that new levy, the panel is recommending repealing Vermont’s new child tax credit, which gives $1,000 per child 5 and under to families making $125,000 or less.

The latest figures from the Legislative Joint Fiscal Office estimate the parental leave and enhanced child care subsidies contemplated in S.56 would cost roughly $160 million starting in 2025, the first full year of operation. 

A natural growth in revenues to the state's general fund from existing taxes could be applied to $49 million of the cost, but to fund another $32 million of the proposal, the Senate Finance Committee’s amendment would repeal the child tax credit. The balance would be funded through a payroll tax, split between the employer and employee, with workers contributing a quarter of the cost.

The child tax credit was billed by its champions in the Vermont House last year as a progressive anti-poverty measure that also took aim at the state’s demographic woes. It was modeled on the federal tax credit that Congress temporarily expanded to $3,600 per child 6 and under during the pandemic and which was credited with lifting millions of children out of poverty nationwide.

But the Senate was always more hesitant about the proposal and its costs. It initially suggested a much slimmer package — and one that sunsetted the tax breaks after three years. (The final bill negotiated between the chambers took out the sunsets.)

“This committee tried to sunset all the tax (credits) because we were concerned about an economic downturn and needing some of that money,” Sen. Ann Cummings, D-Washington, the finance panel’s chair, reminded her colleagues Wednesday. “We failed.”

The committee’s new proposal has been met with concerns from administration officials and some on the left. Craig Bolio, Gov. Phil Scott’s commissioner of taxes, has pointed out that, based on preliminary data, the poorest families have thus far been the greatest beneficiaries of the tax credit. Tax returns processed for this filing season through March 21 show that nearly 40% of tax credit claimants make so little that they already qualify for child care subsidies without a co-pay. 

In written testimony, Stephanie Yu, president and executive director of the left-leaning Public Assets Institute, echoed Bolio and argued that while aggressive investments in child care were necessary, they did not need to come at the expense of other supports.

“Even when they’re not paying for child care, families earning the average wage in Vermont cannot meet their basic needs,” she wrote. “While child care is a big expense for families that use it, there are many other costs associated with children, including housing, food, and clothing that cannot be met at Vermont wage levels.”

As advanced by the Senate’s Health and Welfare Committee last week, S.56 also removed work requirements from the state’s child care subsidy program. But administration officials raised concerns that removing them would imperil the program’s federal match, and the finance committee’s amendment re-introduces them.