There’s No Market Failure in Choosing to Stay Home. So Why Subsidize It?

Vice President J.D. Vance wants to pay married parents to stay home with their children, and he wants to do it with money Congress appropriated to help low-income families afford day care. Whatever one thinks of the goal, which may prove popular, the proposal fails every test we should apply to government subsidies.

That’s because the proposal corrects no market failure. It pays people for choices they’re already making. It adds a new claimant class to a budget that cannot carry the ones already promised something. And it does all of this without a workable plan to pay for it.

Under a draft rule now circulating at the Department of Health and Human Services, married couples in which one spouse works at least 35 hours a week and the other stays home would become eligible for the federal child care subsidy—about $9,000 per child, per year—as payment for “parent-based childcare.” The money would come from the Child Care and Development Fund (CCDF), a $12 billion block grant created in the 1990s to help low-income parents pay for care while working or finishing school.

The CCDF currently covers about 1.3 million children and 870,000 families. Four in five recipient families are headed by a single working parent, usually a mother. The new rule would add no new money to the fund, exclude unmarried couples, and send checks to households rather than day care providers.

Vance aims to end what he sees as discrimination against stay-at-home parents, offsetting the income they give up to care for children and making single-earner married families easier to sustain. These, too, are goals that we can debate, but none will be furthered by this proposal.

Start with the threshold question: Why should the federal government subsidize families at all, or put its thumb on the scale about how they do it? Raising children is humanity’s oldest private activity. The state shouldn’t interfere.

If there is a rationale for intervention, the standard one is market failure: The market produces too little of something society wants—in this case, allegedly, stay-at-home parents. Each family has their own financial circumstances, but no market failure prevents a married couple from deciding that one spouse stays home.

Instead, we’re told that the problem is federal policies, including the CCDF, that subsidize going to work and lead to fewer parents staying home with their kids than would otherwise. The claim is that giving parents similar money to stay home would allow a parent to quit their jobs without losing subsidies.

But for the majority of single moms benefiting from the existing child care subsidy, not working isn’t an option, and that $9,000 won’t make up for the loss of a paycheck. That means that the only ones who would benefit are stay-at-home moms who already made their choice before the government intervention, and those whose families can afford for one parent to stop working.

Cash-for-care programs in Norway and Finland, as well as the extension of France’s parental education allowance to second children in the 1990s, reduced maternal employment more significantly for educated women. In Norway and France, the mothers’ earnings losses persisted for several years after the end of eligibility.

If Vance’s goal is more children rather than fewer working mothers, the record is worse. Hungary, Poland, Japan, and South Korea have spent enormous sums on pronatalist payments. They have almost nothing to show for it except for changes in the timing of fertility.

There are also fiscal questions. First, is it sound to disincentivize work when the two biggest spending programs and drivers of our debt—Social Security and Medicare—are funded by working Americans? If you don’t want to reform entitlements, don’t pay workers to stay home.

Second, there already aren’t enough CCDF funds to serve all the parents who want them for day care. And as mentioned above, those single parents currently benefiting from the program won’t be able to quit their jobs. That means that expanding eligibility to married couples with one stay-at-home spouse will stress the program further. That’s unless Congress expands the funding. With the entitlement crisis and a deficit now running near 6 percent of gross domestic product, how will we cover this new federal program?

The claim that child care subsidies like the CCDF discriminate against married couples is also weak. Our tax-and-transfer system is riddled with asymmetries. Stay-at-home spouses collect half their partner’s Social Security benefit, and all of it as survivors, without paying payroll taxes on their own earnings. Homeowners deduct mortgage interest; renters don’t. The answer to a program you object to is to shrink or end it, not to create a parallel program for whoever feels left out.

If the administration wants to help families, it should remove the barriers that make raising children expensive for all parents independent of their work status.

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