To Build the Care Infrastructure We Need, Tax Credits Won’t Cut It

As we near the end of April, two things are happening: First, the IRS is processing the millions of tax returns Americans filed in 2025, and doling out credits and deductions that in many cases will significantly impact families’ finances and ability to afford necessities. Second, Congress is debating what to put in its 2025 tax reform bill—in particular, how to extend the 2017 Trump tax law provisions that have stripped the government of well over a trillion dollars in revenue and enriched the 1 percent while providing little to no meaningful benefit to the rest of the country. For the tax code to be truly progressive, it must both raise revenue at the top and ensure that families with lower incomes are able to meet their needs. Roosevelt Fellow Indivar Dutta-Gupta’s research focuses on care and the economy, and his recent report Direct Spending on Care Work explores the role (and insufficiency) of the tax code in addressing the care crisis. Research Associate Noa Rosinplotz spoke to him about the successes and failures of the modern tax code as a policy tool for helping families.

You can find Indi’s full biography here.

This interview has been edited and condensed for clarity.

Noa Rosinplotz: Tell us a little bit about yourself and your experience with tax policy. What brought you to this topic?

Indivar Dutta-Gupta: I’ve been working on taxes in some capacity or another since 2005. I’ve worked on tax credits that go to families with low, moderate, and even middle incomes. I’ve worked on revenue measures at think tanks like the Center for American Progress and Center on Budget and Policy Priorities. I’ve also worked as a staffer on the US House Ways and Means Committee, which, among other things, is the tax writing committee in the House of Representatives. The Constitution requires revenue measures to start in the House, so the Ways and Means Committee takes on a particular role in setting tax policy for the country.

Noa: Why do you think policymakers tend to focus on the tax code as a primary lever for investing in families? 

Indi: Well, on the one hand, policymakers have authorized and appropriated enormous amounts of direct spending over the last 50+ years to invest in families. But on the other hand, in recent years and decades, we’ve relied more and more on the tax code to invest in families. This has probably happened for a few reasons—one is that some more conservative policymakers see subsidies in the tax code as different from increasing spending, even though they often look and feel identical. Certainly, with regards to the fiscal position of the federal government, the two are identical in most instances. 

Another is that the tax code has allowed policymakers to deliver more support toward middle-income families—and, frankly, even upper-income families—who are more politically powerful than families with lower incomes. 

Finally, I’d also note that many families have negative experiences interacting with the tax code. So policymakers might feel that if people get benefits when they file for taxes, they will be more supportive of the people who are responsible for the tax code.

Noa: What have been some of the most significant tax-based investments in families in recent years? Has the tax code been successful in filling gaps in support for families?

Indi: The biggest investments in families through the tax code are unquestionably the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The EITC helps increase take-home pay through a once-a-year lump sum at tax filing time for folks with low, moderate, and in some cases middle incomes. The credit amount varies based on the number of children in a family, and I’ll add that there are restrictions, like a Social Security number requirement and an age requirement, that unfortunately prevent many children and elderly folks from benefiting much from the EITC. 

The Child Tax Credit is a program that essentially helps families with low (but not very low) incomes to those pretty far up the income spectrum, due to expansions enacted in the 2017 Trump tax law, which mostly helped middle- and higher-income families and did very little for people with lower incomes. As the name implies, the CTC goes to families with children, though the definition of a child under the CTC is narrower than the EITC definition.

What these programs really do, I would argue, is recognize that we have a lot of low-paying jobs in the United States of America. And rather than boosting pay through stronger unions, a higher minimum wage, or other labor market institutions, like works councils or sector-based bargaining, we have landed on this partial and in some ways far less-than-satisfying solution of allowing some subset of people who are paid too little to benefit from these tax credits so that they can avoid poverty. But frankly, while the credits can be a sizable chunk of some people’s pay, families will not benefit nearly as much as they would with higher wages, especially if they have ongoing cost-of-living challenges, because these credits are just paid out once a year, at tax filing time. 

Noa: Which is one reason the Advanced CTC, in 2021, was so valuable in reducing child poverty. 

My next question is about the CTC and EITC, so I’m glad you brought those up. The US tax code is notoriously complex, and the CTC and EITC are especially known for their administrative complexity. The EITC in particular has a very high audit rate, in part due to how easy it is for families to unknowingly make mistakes. This pushes families toward expensive, extractive, and often inaccurate tax preparation services. How do you think we should navigate the desire to provide families with the help they need while also trying to reduce complexity in the tax code?

Indi: Well, this is a great opportunity for a public option. We’ve actually created one, called Direct File, although it’s at significant risk under the current administration and Congress. Many other rich countries do not require tax filing for as much of the population as we do, or they automate it in ways we don’t. And we finally broke the stranglehold of some of the tax preparation industry and created a pretty fantastic product that was rolled out in several states, and that many families are eligible to use for free.

People who used Direct File found, by and large, that the process was quite smooth. It could certainly be improved, of course, but there was no need for people to shell out money to pay preparers.

The truth is, for many people who have low incomes, the sort of information that’s relevant for tax filing—such as income information or the dependents in a household—are very straightforward. As noted, the error rates are high for the EITC, and arguably also for the CTC, but this has almost nothing to do with any bad intent or people who are ineligible benefiting from these programs—it’s almost entirely attributable to program complexity. So it’s really policymakers who have driven the error rates, not the hardworking families who apply for these credits. 

Noa: In your report, Direct Spending on Care Work, you highlight the fact that the US spends nearly 7 billion dollars a year on care investments through the tax code. Though the majority of spending on care is direct spending, not tax-based investment, policymakers often rely solely on tax-based care policies when proposing reforms. Where does most government spending on care go?

Indi: Historically, policymakers understood the value of direct spending, which is the term for programs directly funded by the government where the government has useful discretion and can achieve a range of policy goals. But of late, policymakers have done less to really build upon that infrastructure, and instead have focused on tax-based proposals to invest in the country’s care infrastructure.

Under the umbrella of direct spending, the Child Care and Development Fund (CCDF) and Head Start programs dominate the funding for early care. The Child Care and Development Fund includes a couple different big federal funding streams that go to states. Within broad federal parameters, states can then expand access to childcare for folks who otherwise couldn’t afford it. And then Head Start, and Early Head Start for children under three years old (both federally funded), can be really consequential for early childhood education and development.

The largest chunk of direct spending is on long-term care, which is mostly through Medicaid. Medicare provides much less long-term care support, so Medicaid is the main way that even seniors can afford long-term care, both for institutions and for what are called home-and community-based services, which allow people to stay in their homes rather than in an institutional setting. 

I should note that I haven’t talked about paid family medical leave because there is no federal paid family medical leave program. Even though a dozen or so states and DC have their own programs, virtually all other wealthy countries have such programs nationwide. And virtually all of those countries have at least maternity leave, and usually overall parental leave. The US has made very little progress on paid leave aside from during the COVID pandemic during which we temporarily had a (frankly, not well-designed) tax-based paid leave program. So unfortunately, paid leave is an area in which we don’t have any big federal investments.

Noa: Your report focuses on the need to look beyond the tax code and provisions like the Child and Dependent Care Tax Credit (CDCTC) or employer tax credits to meet family’s care needs. What are the benefits and drawbacks of using the tax code to provide care investments? And, in particular, what can direct spending do that tax-based investment can’t? 

Indi: Almost the only thing that tax-based investments can do more effectively than direct spending is avoid stigma. We sometimes make families jump through hoops and make it quite unpleasant to take advantage of some direct spending programs, like requiring that people show up for in-person interviews or constantly recertify their needs, and tax-based programs generally avoid these challenges—although you do need to file for taxes to receive tax-based benefits.

But when you think about almost everything else that we want to achieve through federal funding for care, direct spending is equally or much more effective. For example, take certainty around funding—that is, can families rely upon this funding? Tax-based programs, by and large, aren’t capped. Families can rely upon the funding. If they’re eligible, they’ll get the program (although eligibility can be complicated, which adds some uncertainty). But some direct spending programs are also uncapped, and there’s no reason why more direct spending programs investing in family’s care needs couldn’t be uncapped. So, direct spending can be just as predictable and reliable as tax-based programs.

And then you’ve got the issue of access and reach. Direct spending programs can often be more responsive to family needs, and there’s more flexibility in the cutoffs. So, for example, Head Start programs have some flexibility so that even if a family sees their income bump up a bit, they don’t have to destabilize the child’s education and care. Tax-based programs also typically require families to spend the money on care before they can benefit from the tax subsidy. So they have to have the money and pay upfront—sometimes for a whole year’s worth of care—before they can benefit, as opposed to direct spending programs that might have some cost-sharing requirements, but usually just on a weekly or monthly basis.

Both sets of programs can ensure some meaningful choice for families. Sometimes, however, tax-based programs make it very challenging for families to benefit from what we often refer to as friend, family, and neighbor care. That’s a real challenge, especially for those working odd hours, like a lot of lower-wage workers do. 

And then finally, I’ll just emphasize that people want care, but they want quality care, and you can’t have that without investments in the workforce and in learning, training, and information sharing, as well as in setting standards and ensuring appropriate staffing ratios. And tax-based programs do little to nothing to advance quality. We need to provide care in part because that care allows parents to work, and we live in a society where we expect and demand that people work (even when they have challenges like disability, escaping domestic violence, lack of jobs, and the like). And when we expect people to work, that means that people need a place for their dependents. A lot of folks in the sandwich generation, like myself, need to care for multiple generations, but people don’t want to leave their kids just anywhere. They want to make sure it’s a good, safe, enriching environment.

Noa: I want to look ahead to 2025 and beyond. As you mentioned in your report, the 2025 tax reform bill seems likely to do much more harm than good. Republicans seem determined to continue providing tax cuts to the rich without making any meaningful investments in revenue raising or helping working or middle class families. What do you think we can expect to see in the upcoming tax bill, and what are you most worried about?

Indi: The upcoming tax bill is absolutely a missed opportunity. Some Republicans have put out proposals to increase investments in care, but it looks like they’re on the losing side even within their own party. We’re seeing deep cuts to overall revenue projections based on the budget resolutions that are moving through the House and Senate, that then have policymakers turning around and claiming that we need to cut spending in order to finance tax cuts that go disproportionately to the wealthy. But, of course, they created that problem. 

So we’re in a pretty awful situation now where we’re going to shower the wealthy and well-connected with enormous tax cuts that they don’t need, and will do absolutely nothing to help regular working and middle class people afford the basic care they do need. We could even see cuts to food nutrition programs and Medicaid, which might be dressed up as a cost shift to states, but states cannot afford these costs and will be forced to cut access.

Care provision in America is in need of public investment. On the one hand, the profit margins are very slim for anyone who provides care as a business. And on the other, care is unaffordable for the vast majority of families in the working and middle class. Almost every wealthy country that has grappled with this has come to the same conclusion, and that is that we need significant public investment to square that circle. This bill will do the opposite.  Even if we see an expansion of the CTC, for example, it will be dwarfed by the fact that we are giving up trillions of dollars of revenue that could have and should have been used instead to guarantee childcare, create a universal paid family medical leave program, and expand access to long-term supports and services.

Noa: Is there one thing in the tax code that you’d most want to see change? 

Indi: I think it’s quite clear in the United States that people with extremely high incomes have benefited a lot from American society and the economy, have had lots of good fortune, and will not spend their money in ways that will benefit society overall on average. So I would love to see us generating trillions more dollars of revenue from people who don’t worry about whether they can find a slot at a childcare center for their kids so they can go to work, but worry instead about finding a slot in a marina for their second yacht.

There’s research that shows that the revenue maximizing rates on lots of sources of income in the United States at the top would be much higher than the actual federal marginal income tax rates, and in some cases, double or more. So we are just leaving money on the table that could strengthen this country and do roughly nothing to make those who would pay those taxes worse off, because they will still live some of the best lives in the history of humanity. 

Noa: Lastly, do you have any book recommendations related to tax policy? 

Indi: Well, there are a lot of great books on this topic, but I’m particularly fond of The Whiteness of Wealth by my friend, Dorothy Brown. It shows how policymakers essentially built a tax code that subsidizes the sorts of activities, background, and behaviors that white Americans disproportionately engage in, and therefore how the tax code exacerbates racial inequalities. I think this is a major reason why the US falls so far short of supporting its families when it comes to care: Care providers in the US are disproportionately women of color and immigrant women. And when we do subsidize care through the tax code, that often helps middle- and even high-income households, while we have waiting lists in a huge chunk of the country for basic childcare assistance for those with low or moderate incomes. It’s clear that we are creating the very inequities that some policymakers then go and blame on individuals and communities. Economic hardship often stems from choice: not from the choices of the people who experience it, but from the choices of policymakers.