It continues to be a pivotal time in Washington, D.C. A potential government shutdown loomed in early March, and federal budget cuts and mass firings could disrupt the complex web of policies and programs serving families with young children. Despite uncertainty about the path forward, there is an opportunity for policymakers to reform the decades-old federal tax code to better support American families.

A bipartisan, ideologically diverse group of child and family policy experts, advocates, and philanthropic leaders came together on March 7 in the nation’s capital to envision a fairer tax code for families—and one that more families can understand and use.

Here are the key takeaways from the discussion:

1. Family and care provisions in the federal tax code are complicated both in name and practice: The Child Tax Credit (CTC) and the Child and Dependent Care Tax Credit (CDCTC) are “alphabet soup” policies that can be difficult for families to navigate and understand. “It can’t get worse,” one attendee asserted, discussing tax policy during the roundtable discussion. This may be true, yet there is also no clear path ahead to simplifying the tax code and making it more functional for families.

2. There are pros and cons associated with the components of different CTC legislative policy proposals:

• Balancing payment structures: Attendees debated the merits of monthly versus lump-sum CTC payments, with some favoring steady and predictable monthly support and others valuing the financial stability of an annual payout. They praised the monthly child tax credit payments that families received during the COVID-19 pandemic and commended U.S. Rep. Jared Golden,  D-Maine, and his Family Income Supplemental Credit (FISC) Act for its monthly payment structure. However, some roundtable participants noted that many families may prefer an annual lump sum, because they depend on this significant cash influx each year, especially following the winter months, when many households face increased debt and higher energy bills. A hybrid model was suggested as a potential solution.
• Marriage neutrality vs. marriage bonus: The FISC Act proposes a 20% bonus to the income supplementing credit for married couples who file taxes jointly. Some attendees welcome this provision, arguing that it recognizes two-parent households to create a strong family foundation and it encourages marriage. Others expressed concern about narrow definitions of family and the stigmatization of single parents, especially Black mothers. Some warned the bonus could pressure people to remain in unhealthy or abusive marriages. Critics argued eliminating unintentional marriage penalties in the tax code would be a more effective approach.
• Inflation adjustments: Across the board, attendees emphasized that indexing the CTC to inflation is vital to keeping pace with rising child-care costs. While nearly all other provisions of the tax code are indexed to inflation, the CTC is a notable exception.

3. There are differing opinions about the future of the CDCTC: Many roundtable attendees questioned its viability, citing its low uptake and complicated structure. Without the expanded flexibility and generosity provided by the 2021 American Rescue Plan Act, many argue the CDCTC does not function in its current form and provides little benefit to large swaths of families. Some attendees supported proposals such as the Family First Act, which would fold the CDCTC into the CTC so that the CDCTC acts as a de facto “young-child supplement.” Others suggested expanding the CTC and introducing a baby bonus while discontinuing the CDCTC. The idea of including stay-at-home parents in the CDCTC (more on this below) was also a point of discussion. Still others oppose any efforts to eliminate the CDCTC altogether, arguing that families should have more options, not fewer.

4. Reforming the tax code is an opportunity to support stay-at-home parents: Capita’s recent report confirms that stay-at-home parents are a diverse group with diverse care needs. Stay-at-home parents still incur child-care costs, even if they do not earn taxable income, but are not eligible for the CDCTC. Conservatives in the room acknowledged this friction between encouraging marriage and family and the current rigidity of work requirements in the tax code. Attendees discussed solutions to make the system fairer, such as explicitly allowing stay-at-home parents to claim the CDCTC or loosening work requirements to include two-parent households in which only one parent earns a taxable income. Previous bipartisan efforts in this direction were noted, including a stay-at-home-parents provision in the CDCTC within a vetoed Republican-led tax package in 1999 and the positive mention of such a provision in President Clinton’s State of the Union that year. Reforms to the tax code could recognize the value of unpaid child care care, which is often invisible and unseen.

5. Tax reform is not a silver bullet: While attendees welcome tax reform, they worry that changes to tax policy might be viewed as a complete solution to child care issues rather than a “tweak.” They are concerned that the tax code can be too granular and limiting.

Roundtable discussions at the event included conversations about other opportunities to improve child-care flexibility, affordability, and access, including:

• Several attendees argued that stipends are more promising than tax-code reform and pointed to a pilot military model. They favored stipends for their flexibility and accessibility to families, though they recognize this approach has political challenges.

• The CDCTC gives families the flexibility to choose from different child-care arrangements. However, that flexibility is not reflected in the current market. Tax reform alone, without giving parents abundant care options, does not solve accessibility issues. Attendees discussed ways to create a system better suited to families’ diverse care needs, such as creating more flexible child-care options by offering rebates to incentivize more providers to offer drop-in care.

This discussion was a rare moment of bipartisan engagement on family policy and showed a clear willingness among these leaders to engage in conversations about tax reform across ideological differences. Reforming the tax code presents an opportunity to better meet the needs of American families and recognize the economic contributions and sacrifices that result from caregiving.

Elliot Haspel is a Senior Fellow at Capita.

Ivana Greco is a Senior Fellow at Capita.

Elise Anderson is a Senior Associate at Capita’s Family Policy Lab.