How the Build Back Better Act Would Address the Price Increases Hitting Families Hardest
By Amanda Novello
Despite many indicators of a strong economic recovery, from job growth to wage gains, there is one indicator that has stolen the spotlight. Inflation, or aggregate price growth, has posted a one-year rise of 7.5 percent — the highest rate in 40 years. There is ongoing debate around what is driving inflation, and whether it is a pandemic anomaly or a permanent feature, with a few key factors including:
Supply chain woes: This American Prospect series details how precarious working conditions, deregulation, and underinvestment in transit industries made the supply chain more vulnerable than ever;
Price-setting power: Bureau of Labor Statistics inflation data show that the biggest price increases have been in highly concentrated industries like energy, cars, and food (especially meat products), while corporations are netting the biggest profits in decades; and
Consumption trends: Pandemic consumer demand is outpacing typical supply, and is substituting in-person services with consumer goods (e.g., home office supplies and used cars). This, by one estimate, increased inflation by 0.2 percentage points.
Regardless of its sources, inflation is hitting Americans, especially lower-income households, in their pocketbooks. Wage growth has not kept pace with price increases for most workers, although there have been real gains for the lowest-income earners, in part because of American Rescue Plan investments (e.g., in state and local government, hazard pay, and childcare workers). However, an ongoing and robust policy response should mitigate harm to working families and ensure prices don’t continue to climb. The Build Back Better Act (BBBA) has proposed various counterinflationary measures, including provisions to address supply chain issues. In this blog, we assess three key components of the BBBA that can work to counteract the dramatic and rising costs of childcare and family care, while at the same time providing more economic security for women and families.
The Cost of Care
The cost of childcare and family care has skyrocketed in recent decades, rising faster than other essential goods. In most states, childcare costs more than a college tuition, and nursing home costs are significantly higher than that. Especially in the face of a continuing pandemic, the lack of affordable and accessible childcare and family care, coupled with the absence of national paid family leave, makes it impossible for families to keep up with these continually climbing costs. Therefore, the BBBA investments in these exact policy areas are needed now more than ever.
1. Childcare. Unless the BBBA is passed, childcare costs will rise by 14 percent by 2025, compared to pre-pandemic rates. That means someone paying $13,000 per year in 2019 for one child’s care will pay nearly $15,000 in 2025, unless the BBBA reels in prices. The BBBA would fully subsidize childcare for families making less than 75 percent of their state’s median income (SMI), and would cap childcare costs at 7 percent of annual income for families making less than 250 percent of SMI. This provision would save the lowest-income families up to $13,000 by 2025, and low-mid-income earners up to $4,000. Others have shown that most families will save up to $5,000 per year.
BBBA childcare cost-containing provisions would provide a massive savings to working families. Households at 75 percent SMI make $68,000 on average, (1) which means that if childcare costs $13,000 per year (for one child), it eats up 19 percent of their annual income. This ends up being an impossible cost that leads many low-income families to either seek unstable family and friend care options, or have one parent leave the job market to provide care, further impacting family finances. For families making 150 percent of their state’s median income, which is less than $150,000 on average, a $4,000 savings from the BBBA cost-containing subsidy would amount to 3 percent of a family’s budget. In sum, under the BBBA, low- to middle-income families would see anywhere between 3 percent and 19 percent increase in income — a massive help in counteracting increased prices of other necessary goods.
According to one study, families with young children lost $13 billion per year during the pandemic because of childcare disruptions — a significant collective loss that demonstrates how critical care is to families and the economy, and women-headed households in particular. A historic investment to expand childcare access will greatly impact parents’ ability to stay in the labor force and stop this massive bleeding out of family resources.
2. Home care. Even before the pandemic, providing the resources that disabled and older Americans need to live with dignity and autonomy posed significant financial challenges to individual families. The COVID-19 pandemic is a mass disabling event and the population of the United States is rapidly aging. Without significant investment, the care that disabled and older Americans need will be out of reach for a large portion of those who need it.
One estimate suggests that the annual cost of a shared room in a nursing home was $88,000 in 2017, and another posted a rate of $93,000 in 2020. More than 149,000 residents of nursing homes have been killed by COVID-19. Because of the dramatic cost, the loss of independence and autonomy that comes with placement in a nursing home, and pervasive and longstanding deficits in the safety of nursing homes, (2) a growing majority want alternatives to being institutionalized. Many states provide access to funding for in-home care, but much more is needed to ensure home- and community-based services are an accessible and affordable option for care.
The Biden Administration recognizes this challenge, and the BBBA currently includes $150 billion for home- and community-based services. The funds will increase funding to Medicaid and improve quality and worker compensation for millions of home health aides who are often paid poverty wages — a majority of whom are women of color. Funds would boost supply to meet existing demand for these services, and allow significantly more individuals to avoid the astronomical costs of nursing homes and other institutional settings (which are not covered by Medicare), potentially saving families tens of thousands per year.
3. Paid leave. The need for both care and paid leave has only increased in the past two years. More than 40 million working-aged Americans provide care annually, and only 61 percent of those caregivers were in the labor force, according to the latest data. Throughout the pandemic, an average of 3.2 million adults each week have reported they were unable to work because they were either sick with coronavirus symptoms, or because they were providing some form of care — a number that reached a pandemic high in January 2022.
Paid family and medical leave is critical for allowing workers with disabilities or chronic medical conditions, new parents, and family caregivers to stay attached to their jobs. Research from state-level implementation shows that workforce participation increases up to 14 percent over an eight-year period. Scaled up nationally, that would mean 6 million caregivers, a majority of whom are women, could enter the workforce by 2030.
The BBBA’s provision of four weeks of paid family and medical leave would keep millions more securely attached to their jobs, while boosting household financial security. For the 77 percent of workers who do not have paid family leave in their jobs, the BBBA would provide a critical safety net. Instead of facing financial hardship, a worker taking four weeks of family or medical leave would have $2,000 in income replaced, on average. That would be a massive boost to family budgets to help cover rent, food, and other expenses, and counterbalance any increases in the cost of those necessities.
The BBBA, Inflation, and Equity
The equity imperatives of the BBBA agenda are clear, and inflation adds both urgency and impetus for its passage. The lowest-income workers feeling the biggest impacts of inflation are those least likely to have paid family and medical leave, (3) and are less able to cover regular expenses during periods out of work. (4) In addition, family members — most often women — who are more likely to provide childcare and family care, sorely need the support these policies would provide. In states that invest more in care infrastructure, women see higher rates of workforce participation and smaller gender pay gaps.
Furthermore, the expiration of the Child Tax Credit in December of 2021 spiraled millions of children — disproportionately Black and Latinx kids — back into poverty, which the BBBA could swiftly reverse. In sum, these core components of the BBBA would reduce the cost and increase availability of vital services, improve families’ financial security, increase job growth and job quality in care sectors, and bring recent economic gains more in line with a just recovery. Resuming Build Back Better negotiations to achieve these ends should be one of Democrats’ highest and most urgent priorities.
Amanda Novello is a senior fellow at Data for Progress and an economic policy research consultant. She was formerly a researcher at the National Partnership for Women and Families and The Century Foundation.
National figure is calculated by averaging 75 percent of each state’s SMI.
See Table A-48.
See Table 33.
See Page 5.