Why are child care/day care costs rising so fast?

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dead0man has pretty much got it right. I pay $250/week for my son's day care. When he's 2 years old, that'll drop to $205/week, and at 3 years it'll drop to $185/week. In Maryland, the ratios look like this:

<2 years: 1:3
2 years: 1:6
3-4 years: 1:12
5 years: 1:15

A bit more stringent, but the same basic thing. So for my 16 month old, he's in a class with 5 other kids of the same (ish) age, each paying $250 a week. That's $1500 a week. Each of those kids is in care for probably 40-50 hours a week. Let's lowball that and say 40 hours. They have to be cared for by two teachers. So splitting up $1500 between two teachers, we get an hourly rate of $18.75 (if we go with 50 hours per kid, then we get an hourly rate of $15; also, this doesn't really deal with the case where, let's say, you've got 4 kids there. You still need two teachers because there's more than 3 kids.)

But that's if all of the money went directly to the teachers, which we know is obviously not the case. Some goes to center upkeep and administrative costs. Some goes to the snacks and other food that are provided to the kids. Some goes to the toys and art supplies that the center provides. Etc. Even if the provider doesn't take a very big profit margin, we can still see how infant care makes almost no money for caregivers.

This is paradoxically why universal pre-K proposals have wound up driving up prices for day care, too. Because of these ratios, the kids who get covered by universal pre-K were previously the most profitable kids for centers to take, and centers could spread out their fee structure a bit more and take a bit more of a loss on infants. But if those older kids get free pre-K, then all of those costs have to shift up to compensate.

Basically, as I'm finding with my son (and my daughter, on the way in two months), day care is the worst of both worlds: insanely expensive for the customer, and barely subsistence-level earnings for the provider.

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What kind of college - public, private, or public out-of-state?

If we use private or public out-of-state numbers, then Figs' $185-$250/week (about $9,250 - $12,500 a year) is a lot less than college tuition.

I mean, bear in mind, of course, that we also looked at some KinderCare centers that cost something closer to $375 a week. I'm not sure what the average cost is. We got lucky to find a center that cost as little as ours did, and with open space for us when we needed it.

I think we should perhaps make the childcare tax deduction more broad and expansive. It seems pretty damn insignificant if I am reading the criteria correctly.

One thing I have been told by others is that this issue is a tad bit over rated, because there is a fairly extensive black market for daycare that is not always unsafe and can be far cheaper. These are protective service and law enforcement folks who have said this.

I don't know how you could, policy-wise, increase the supply of daycare centers/in-home daycare.

1) The child care tax credit is pretty insignificant, truth be told. If you have one kid, you get a refund of 20-35% of $3,000 of your child care expenses for one child, or 20-35% of $6,000 of your child care expenses for two or more children. The percentages shift down as income goes up. If your AGI for the year is over $43,000, you're down to 20% of those expenses. So, basically, in my case, we have to pay $13,000 a year for day care for my son, and we get $600 back through the child care tax credit. Not nothing, but certainly not much.

The other option that we use right now is a Dependent Care FSA (Flexible Spending Account). We can set aside $5,000 of pre-tax money to pay for child care (which doesn't cover nearly all of it, obviously). Our income puts us in the 25% or 28% bracket, so we save somewhere between $1,250 and $1,400. And then if we have two kids with qualifying expenses (which we will soon), we can claim the child tax credit on the amount of qualifying expenses that exceed our FSA election. That is, we could normally claim $6,000 for the child care credit. If we elect $5,000 into the FSA, then we can only claim the remaining $1,000 for the child care tax credit, netting us another $200.

Lots of employers offer fee assistance programs, which is good too, but messes with FSA stuff. Basically, you can only take $5,000 tax free into the FSA, but if you get fee assistance, that $5,000 gets reduced by the amount of the assistance. If your employer contributes, say, $2,000 a year to your child care, then you can only elect $3,000 into the FSA, and if you've elected more you can't change it and you have to settle up at the end somehow.

The FSA is nice, and it definitely saves us some money, but it's kind of irritating. We have to file a claim every two weeks to get the amount of our election deposited into our account.

2) As far as the black market for day care that is "not always unsafe," I don't know that that's even in the same universe as an acceptable level of risk for me, as a parent. Maybe some regulations could be tweaked, but as far as stuff like teacher to kid ratios, I'm exhausted after one day taking care of one kid. Increasing the ratio for the teachers for infants from 1:3 or 1:4 seems like a terrible idea to me.

The problem really is that it's very difficult to profitably and safely provide infant care without being prohibitively expensive to almost anybody. An expansion of tax credits would help, though it would still require that people be able to front the money and then recoup it come tax time.

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Like I said, you can already make use of a Dependent Care FSA, which functions largely like an HSA. You can elect up to $5,000 to be taken out of your paychecks pre-tax to use on qualified child care expenditures.

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Ah, ok, I wasn't really clear on the finer points. That's an interesting idea. So you're saying, then, to lump everything all into one account with a limit equal to the limits of the HSA and the DCFSA? Like I had the option of creating a $5,000 DCFSA and a $2,500 HSA (I didn't because my medical insurance is good and needs to be now because I have multiple sclerosis), so would your proposal just make one big $7,500 spending account, all of which could be used either for qualified health care expenditures or for dependent care, and would be pre-funded?

In principle I've got no problem with that. Expenses are expenses, whether predictable or unpredictable. If I know that I'm going to have at least $7,500 in expenses over the course of the year, it doesn't matter if they're predictable dependent care expenses or unpredictable health emergency expenses. The pre-funding is a nice feature, since it would allow (I'd think) for easier planning.

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Why are parents fiscally gullible? Who said there's a lack of facilities?

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It looks as though you haven't actualy been reading the rest of the thread. I get supply and demand, but there is a point past which providers can't profitably drive prices lower. For infant care, we're often hovering at or even slightly below that point, especially for in-home providers. There's a home day care nearby that we didn't go with that charges $185/week for infants, which at 3 infants a week for 40 hours per comes to an average of less than $14/hour GROSS for the provider, out of which they have to pay insurance, facility costs, upkeep, supplies, administrative expenses, etc.

Child care is not a place where increased supply can reasonably keep driving prices down. Providers are squeezed at least as much as parents.

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It looks as though you haven't actualy been reading the rest of the thread. I get supply and demand, but there is a point past which providers can't profitably drive prices lower. For infant care, we're often hovering at or even slightly below that point, especially for in-home providers. There's a home day care nearby that we didn't go with that charges $185/week for infants, which at 3 infants a week for 40 hours per comes to an average of less than $14/hour GROSS for the provider, out of which they have to pay insurance, facility costs, upkeep, supplies, administrative expenses, etc.

Child care is not a place where increased supply can reasonably keep driving prices down. Providers are squeezed at least as much as parents.

Yeah, there's not a whole lot of opportunity for economies of scale in early childhood care. You want your infant being cared for by someone who is qualified to do so and you only want that person looking after a few other kids at the same time. Liability is a huge issue.

But most people would be shocked by how un-regulated daycare providers are. This isn't a case of government mandates driving prices up.

Indeed.

A lot of my clients have childcare deductions on their taxes. Childcare for older children is actually pretty affordable, while care for babies is not, largely due to the worker:child ratios involved. Therefore, more generous maternity leave with perhaps a cash payment for parents of young children a la Canada's Universal Childcare Benefit would be an excellent solution.

Yup. And to the extent that childcare for older children is pretty affordable, it could probably be even more so, since centers have to charge more for those older children than they otherwise would to cover the costs of the younger children, on whom they would probably come close to just straight up losing money.