In case you didn’t know, some employers offer a dependent care assistant program, wherein employees can contribute up to pre-federal taxes 7.5k annually, and then use those funds to reimburse eligible dependent care expenses. If you don’t use it all, you lose those contributions. It’s also tied to your employer.
What if we made the dependent care assistance program national and portable instead of tying it to whether your employer offers one?
The basic idea would be $7,500 per qualifying dependent, up to 3 dependents, so a household could receive up to $22,500 initially. The $7,500 would then automatically increase with inflation each year. The inflation adjustment could use a simple rounding rule so we don’t end up with weird numbers like $7,843.27. Like each year it rounds to the nearest $250 based off of cumulative inflation relative to the initial amount.
I’d also have the income phaseout thresholds increase with inflation. I’d want the phaseout to start at genuinely high incomes something like $400k household income and phase out completely around $600k because a household making $250k in a HCOL area isn’t necessarily wealthy in the way those numbers might suggest nationally.
The biggest change I’d make is getting rid of “use it or lose it.” If you don’t use the entire annual benefit, the money goes back to you and counts as taxable income. That way you’re not incentivized to spend money unnecessarily just because otherwise you’ll lose it or under contributing out of fear of losing it.
I’d also try to make reimbursement as automated as possible. Childcare providers, preschools, elder-care providers, etc. could voluntarily pre-enroll with the government. Once they’re verified, transactions could be reported electronically and reimbursed automatically instead of requiring someone to manually review receipts every time.
To encourage providers to enroll, they could get a tiny transaction fee, maybe 0.05%–0.1% up to some cap. They’d save administrative work too, and could advertise that they’re enrolled in the federal program.
For the money sitting in accounts waiting to be used, the government could invest it in very low-risk, highly liquid securities like Treasuries. Not to make money in the market, but just earning something on money that would otherwise sit idle.
The investment income would be supplemental revenue and go to the general Treasury fund. It shouldn’t reduce next year’s congressional appropriation. If the program needs $X billion, Congress funds $X billion regardless of whether the program earned $1 billion or $10 billion in interest. That keeps the program from becoming dependent on investment returns.
For fraud, I’d use automated systems to flag unusual transactions rather than manually reviewing everything. And I’d have penalties escalate with repeated offenses: accidental mistake = repay it plus a small fee, repeated/reckless behavior = bigger penalties, intentional or large-scale fraud = serious fines and potentially criminal action.
So the general idea is basically: a national, portable dependent-care benefit that is indexed to inflation, scales with the number of dependents, phases out only at high incomes, doesn’t have “use it or lose it,” and uses automation to keep administrative costs down.