Just Taxes Blog by ITEP

Our Taxes Can Set Kids Up for Success

March 26, 2024

Having a child is one of the most exciting times in life for any parent. But it can also be a source of immense financial strain. The good news is that there are proven policy solutions, powered by equitable tax revenue, that can make life better for families.

Deep public investments have an enormous positive impact on families with children. Investing our tax dollars in high-quality child care, accessible Pre-K, universal paid family leave, and outstanding public schools can make the joy of parenthood more of a reality for families, especially families of color, and help to position future generations for lifelong success.

The first few years of a child’s life are essential to their development, and taxes play an important role in that. Recent studies show that childcare and Pre-K programs prepare children for the future, paying real dividends in the form of higher test scores, greater college attendance, and improved workforce readiness.

Public education also has an enormous role in shaping children’s outcomes and the economic success of our communities, but funding for public schools is uneven across states and localities. In our most recent Who Pays? report, we find that states with more equitable taxation of top earners tend to raise more revenue for schools and other services. One result of that: the 10 states with the most equitable tax codes invest 47 percent more, per pupil, in elementary and secondary school education.

Powered by coalitions of parents, educators, care providers and community leaders, some states have raised new revenue to invest in education and child wellbeing in recent years. Take Massachusetts, where in 2022 voters successfully passed a ballot measure to levy an additional 4 percent tax on incomes over $1 million to support education and transportation services.

The tax is already bringing in more than expected and has enabled, among other things, free school meals for K-12 public school kids, tuition-free community college for eligible students, and a $25 million investment to reduce child care waitlists and increase the reimbursement rate paid to providers. The latter reform is anticipated to be particularly consequential for families of color, as historic and ongoing discrimination means they are more likely to have incomes low enough to qualify for financial assistance with child care.

What happened in Massachusetts doesn’t have to be a rare occasion. This is a valuable blueprint for other states looking to raise revenue equitably and fund services that help children thrive.

Last year, Vermont overhauled its childcare system to improve affordability for families. Legislators overrode the governor’s veto in a rare bipartisan agreement and passed a bill that enacted a new payroll tax to make significant investments in the state’s child care system. With collections beginning in July, this new revenue source will provide $125 million in annual funding for the Child Care Financial Assistance Program. The bill also included a 35 percent increase in the reimbursement rates for child care providers.

Minnesota also stands out as a state choosing to pair greater tax equity with improved investments in children. Last year, lawmakers there chose to raise taxes on profitable corporations and high-earners’ investment returns, helping to pay for, among other things, universal free meals in Minnesota public schools. Also included among Minnesota’s many 2023 reforms was a new payroll tax designed to fund paid leave to care for a new child, a seriously ill family member, or one’s own health. Unfortunately, just 13 states and D.C. have a mandatory paid leave law, while eight have voluntary ones. That leaves 29 states and the federal government without a program at all.

The list of states choosing to invest more deeply in child wellbeing is growing longer with every passing year. California, for example, recently decided to direct $2 billion to a child care and preschool program while Connecticut is increasing its reimbursement rate by 10 percent for childcare providers who accept subsidies and increasing providers’ payment rates by 11 percent every year for the next three years. And Maine is spending $2.5 million for child care staff subsidies and doubling its investment in wage stipends for providers from an average of $200 to $400.

On top of all these solid investments, there’s also been a concerted move to bolster the economic security of low- and middle-income families through state child tax credits. More than a dozen states provide child tax credits. Public investments and targeted tax credits alike can greatly improve the lives of our nation’s children.

Every child deserves the opportunity to succeed in society – and tax policy has a huge role to play in making that happen. Better tax policy can help prepare our young children with skills to become successful and thriving adults.


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