Ways and Means Tax Reform Hearing


November 7, 2017

Congressman Danny K. Davis Statement on Amendment Restoring the Adoption Tax Credit, Exclusions for Employer Dependent Care and Adoption Assistance Programs, and Expanding the Child Care Tax Credit to Strengthen Families

I have an amendment that strengthens families by reinstating the Adoption Tax Credit with refundability, permanently restoring the exclusions for employer dependent care and adoption assistance programs, and modernizing the Child and Dependent Care Tax Credit to address the rising cost of child care and to benefit more working families. This amendment is fiscally responsible in that it offsets any costs associated with supporting middle class families with a minor increase in the corporate tax rate.

The Adoption Tax Credit is a bipartisan credit that helps families offset some of the costs of adoption, especially for children with special needs.  Currently, the benefit is non-refundable for up to about $13,000 of qualifying adoption expenses per adopted child, with a 5-year carry forward 

In 2014, over 73,000 households claimed the Adoption Tax Credit, with an average credit value of $4,802.  However, almost 60 percent of the credit went to families with incomes over $100,000.  Although almost HALF of the claimants had income under $75,000, these adoptive families received less than one-fifth of the adoptive credit in dollars. This is especially problematic given that approximately half of youth adopted from foster care live in families with incomes at or below 200 percent of the federal poverty level; thus, the credit as in inadvertently creates barriers to permanency for a substantial number of families. 

Compared to youth who remain in foster care, adopted children experience much greater economic and social well-being.  Additionally, families who adopt from foster care save the federal government between $65,000 and $127,000 by getting children out of costly foster care and into permanent adoptive families.   

To restore the refundability of the credit, I joined Congressman Diane Black in introducing The Adoption Tax Credit Refundability Act. We heard repeatedly about how the refundability helped meet the needs of the adoptive children and the hardship caused when refundability went away.  This was the case for the Leiva family in Chicago who adopted two foster youth with special needs and the Owens family from Pennsylvania who adopted 4 medically-fragile children from foster care nursing homes.

My amendment reinstates the Adoption Tax Credit and incorporates the improvements from our bill so that more families can benefit and more waiting children can be adopted.  Restoring refundability of the Adoption Tax Credit is supported by the 150 Member organizations of the Adoption Tax Credit Working Group, and I ask unanimous consent to submit to the letter of support from these organizations to the record as well as their statement of shock that HR 1 strikes this critical tax benefit for families.

My amendment also enhances the Child and Dependent Care Tax Credit. 

Child care is the largest or second largest annual expense for families. The average cost of daycare for children up to age four has climbed to almost $10,000 a year, more than the average cost of state college tuition.  For families earning the national median income, the average cost of care for just ONE child under five amounts to 18% of their income; for lower-income families, child care alone can cost as much as 30% of their pay.  Indeed, the Midwest and Illinois have some of the highest child care costs in the nation.

Unfortunately, as currently structured, very few families receive meaningful benefit from the Child and Dependent Care Tax Credit due to the extremely low phase-out level of $15,000, the low expense limits, and the loss of benefit due to inflation.  For example, although 19% of U.S. taxpayers in 2014 used the Earned Income Tax Credit – a good marker for the percent of low-income working parents, only 4% of taxpayers benefited from the Child and Dependent Care Tax Credit. This 15-percentage-point disparity reflects the critical need to modernize this credit.

The small $600 increase in the Child Tax Credit and the temporary reinstatement of the exclusion of employer dependent care assistance in the bill is woefully insufficient to help address these costs, especially when coupled with the double taxation from repeal of the SALT deduction, the loss of critical personal exemptions, the loss of medical expense deduction, and the devaluing of housing costs resulting from the limits on the mortgage interest deduction.

As the majority emphasized yesterday, child care is essential to prepare children for success and to support parents’ employment.  Importantly, economists calculate that making child care more affordable will INCREASE parents’ workforce participation and substantially boost our economy and tax revenue.  As the Majority emphasized yesterday, we must do substantially more to help those who most need help.  My amendment helps those most in need by:

  • Making the full credit available to most working familiesby raising the current phase-out of $15,000 to $120,000 to help middle class families.
  • Putting more money into a family’s pocket by increasing the maximum credit from $1,050 to $3,000 per child (age 0-13), up to $6,000. 
  • Ensuring lower income families see a benefitby making the credit fully refundable.
  • Helping working married couples who file separately to due to high student loan debt by allowing them access to the credit. And I thank Marcy Kaptur for raising the issue of Ohioans filing separately    who are currently excluded from the Child Care credit. AND
  • Retaining the value over time by indexing it to inflation.

Middle class families need more than $600 and an exclusion to pay for quality child care so that they can work. Nineteen child advocacy groups support these changes, including the National Women’s Law Center, the National Association for the Education for Young Children, First Focus Campaign for Young Children, and Zero to Three.

In addition, my amendment permanently reinstates the exclusion of employer-provided adoption and dependent care programs.  Families deserve the same permanent tax benefits as corporations.  We should not penalize employees whose employers have family-friendly policies.  My amendment reflects common-sense federal policy—it strengthens families.

Congressman Davis is the Ranking Member of the Human Resources Subcommittee of the Ways and Means Committee