child care market is fundamentally broken, characterized by unaffordable costs for parents, unsustainably low wages for workers, and a chronic shortage of supply.
Private equity has heavily invested in the sector, with PE-backed firms controlling nine of the ten largest for-profit chains and achieving 15-20% profit margins through financial engineering, not by expanding access to care.
Current federal tax incentives primarily focus on demand-side subsidies for parents, which are insufficient and fail to address the core supply-side problem of a severe labor shortage driven by low pay.
Professor Lauren Shores-Pelican proposes a new supply-side tax incentive, the "child care service provider exclusion," to allow workers to exclude their wages from income and payroll taxes, thereby boosting take-home pay to attract and retain staff.
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Concerns Raised
The financial unsustainability of the current child care model for both parents and independent providers.
Private equity's extraction of profits through financial engineering without expanding child care access.
The systemic risk of collapse of PE-backed chains, which could suddenly eliminate thousands of child care spots.
The inadequacy and potentially counterproductive nature of purely demand-side government subsidies.
Opportunities Identified
Implementing a supply-side tax incentive, like the proposed wage exclusion, to directly address the labor shortage.
Expanding the supply of affordable child care to boost labor force participation and economic growth.
Creating a more stable and equitable child care sector through innovative federal tax policy.