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Three Cases of Federal Policy Formation In this chapter we present summaries of the three case studies that comprise the evidentiary base for this study: (1) the Special Supplemental Food Program for Women, Infants, and Children; (2) the Federal Interagency Day Care Requirements; and (3) the Child Care Tax Deduction/Credit. Each summary distills significant information from the case and organizes it into an interpretive narrative. All detailed documentation is in the case studies themselves, which are presented in Part 2 of this volume. Here we provide a descriptive presentation of the data, highlighting the significant factors contributing to these selected federal policy developments. THE SPECIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, INFANTS, AND CHILDREN Significant federal food assistance to children began in the mid-1930s when Congress passed the Agricultural Adjustment Act, giving the U.S. Department of Agriculture (USDA) millions of dollars in surplus farm products. In conjunction with the Work Projects Administration, the USDA channeled some of this surplus food to schools and relief programs. With the wartime disruption of inter- national markets in 1939, the USDA expanded domestic distribution outlets, particularly the School Lunch Program. When America entered the war, the food surplus was absorbed by allied and domestic needs. Nevertheless, the USDA continued the lunch program as a wartime exigency. In 1945 the lunch program drew political support not only from farm interests but also from local school districts, PTAs, state school administrators, and 15
16 health officials. In 1947, Congress made the School Lunch Program permanent. Until the Great Society programs of the 1960s, Congress enacted only one other food assistance initiative for children: the Special Milk Program. _ . . ~. In 1965 a glut of milk Increased federal surplus holdings to unmanageable levels. With the support of the USDA And if; r`, ;nh~r=~= ~ ~ _ ~ & _ ~ ~ ~ ~ -- ~ congress creacea a main a~str~out~on program for children in schools, summer camps, and other institutions to ease the government's surplus holdings. The Special Milk Program was significant for two reasons. First, the programs represented the only postwar effort to provide food assistance to children outside school. Second, every administration since Eisenhower had tried unsuccessfully to curb the program on the grounds of an improved dairy situation or the failure of the program to target aid to needy children. In 1966, Congress passed the Child Nutrition Act, shifting food assistance resources to children in poor areas, whose nutritional needs were presumably greater. The act was part of a general movement in the mid-1960s away from agriculturally determined food assistance programs and toward programs specifically directed to disadvantaged groups. This movement reflected a growing coalition of school interests and antipoverty and anti- hunger groups. There was, however, no irreconcilable antagonism between members of Congress representing either farm or antihunger groups; indeed, several came to represent both. Among congressional supporters the idea of taraetina food assistance to poor, malnourished children grew In the 1967-1968 period with repeated media exposes on hunger in the United States. Together with the civil rights movement's new attention to economic equality and the increasing political tensions within the Democratic party over the war in Vietnam, these exposes induced expansion of all federal food assistance. Among the Johnson administration's responses to these pressures was the Supplemental Food Proaram. __ Based in part on medical research on the effects of malnourishment on fetal and infant development and in Part on the enormous political _ _ . appeal of feeding hungry babies and pregnant women, the Supplemental Food Program supplied special food packages to provide additional nutrition to this group. Throughout its life the program remained small--$10 to S12 million-- and was soon engulfed in the Nixon administration's decision to replace all in-kind food assistance with
17 stamps. This decision was based on the administration's efforts to reduce delivery costs and prepare the food assistance programs for possible incorporation into an overall welfare reform: the Family Assistance Plan. To assess the viability of a changeover of the Supplemental Food Program into a voucher program, the USDA initiated in 1970 a pilot voucher program and commissioned Dr. David Call of Cornell University to evaluate it. Call found that targeting particular foods to family members, in this instance infants and pregnant women, did not significantly increase their nutritional intake because the additional food was shared by all family members. Presented with this evidence of failure and given the overall policy thrust toward food stamps, the USDA began phasing out the Supplemental Food Program in 1971-1972. Local welfare clinics and other advocates, however, protested the department's plans. Through the intercession of several members of Congress, the USDA halted its suspension of local programs in particular states, but the program as a whole remained in a political limbo. In 1972 a staff member of the Senate Agriculture Committee, James Thornton, became aware of two local food and medical assistance projects at St. Jude's Hospital in Memphis and at Johns Hopkins University. Both projects provided specific nutritional aid and medical care to infants and pregnant women in poor areas. The projects produced significant reductions in anemia among the Working with Rodney Leonard, president of the Community Nutrition Institute, Thornton drafted legislation creating a $20-million federal program in the mold of the Johns Hopkins-St. Jude projects. Senator Hubert Humphrey agreed to introduce it in the Senate. After a defeat in committee and some debate on the floor, the Senate passed the program as an amendment to the Child Nutrition Act. Despite USDA opposition, the House concurred. President Nixon signed the bill, and the Special Supplemental Food Program for Women, Infants, and Children (WIC) became law in December 1972. Due to Call's findings on the ineffectiveness of targeting food to families, the USDA had initially opposed passage of the program. A Senate amendment, included at the department's behest, that mandated a complete evaluation of the program led officials to believe that WIC would be found ineffective--USDA thus acquiesced. The implementation of WIC, however, posed problems for the department. Unlike the Supplemental participants.
18 Food Program, WIC had a medical requirement for partici- pation and evaluation. The medical and health content of the program caused the USDA to try to transfer it to the U.S. Department of Health, Education, and Welfare (HEW). Failing in that attempt, the USDA continued in its indecision over the program's design and evaluation. Nutrition advocacy groups became convinced that the USDA was deliberately delaying implementation in order to scuttle the program. They began pressuring the department through Congress. Redbook magazine ran an article describing the St. Jude's project and urging readers to write in protest over the USDA's delay in implementing WIC. Finally, in spring 1973 the Food Research and Action Coalition (FRAC), a public interest law firm, brought suit in federal district court against the USDA to compel it to spend the funds authorized for WIC. A combination of circumstances, most of which were planned, allowed this and subsequent litigation to transform WIC from a $20-million pilot into a $0.5-billion program. Since they anticipated litigation when drafting the legislation, Thornton and Leonard had used entitlement language that legally mandated the expenditure of funds. In addition, they had stipulated that WIC draw its funds from Section 32 tariff funds--thus removing the program from normal appropriations channels in Congress. Armed with these provisions, the FRAC successfully obtained a court decision ordering the USDA to spend all the funds authorized for WIC in fiscal 1973. Since the fiscal year had nearly ended, the USDA was compelled to spend $20 million in 3 months. This order effectively annualized WIC's participation rate at $80 million. The law and the litigation combined to produce a mechanism by which every delay, intentional or otherwise, or impoundment of WIC funds served only to compress the funds to be spent into a shorter time span and across a larger number of participants. When WIC's two-year, $40-million authorization expired in 1974, Congress faced a decision concerning a program whose annualized expendi- tures exceeded $100 million. Given a choice between quintupling WIC's funding or dropping thousands of pregnant women, infants, and young children from the program, Congress quintupled it. The following year, over a presidential veto, it passed a child nutrition bill that exceeded administration requests by $1 billion. Included was a $250-million authorization for WIC. Pro- ponents justified this expansion on the grounds of par- ticipation rates and evidence of WIC's success drawn from committee testimony and surveys.
19 Despite the USDA's delaying of WIC's implementation, the Office of Management and Budget (OMB) impounded a quarter of WIC's 1976 funds by spreading the authorization over an additional fiscal quarter. The FRAC returned to court and obtained an order for the USDA to spend all authorized funds. The effect was to expand WIC to an annualized level of $440 million by the close of fiscal 1978. Within a month of this final court decision the evalua- tion of WIC, which was to have determined its fate as a $20-million pilot program, was finally completed. The long-awaited evaluation was conducted by Dr. Joseph Endozien of the University of North Carolina. Endozien found that WIC infants evidenced increases in weight, height, head circumference, and mean hemoglobin concentra- tion and that anemia decreased. Despite the evaluation's conclusion that the program was an unmitigated success, the General Accounting Office (GAO) and several outside reviewers found it fraught with methodological and conceptual problems. GAO went so far as to question whether an evaluation of the type WIC required was even possible. Adding to the criticisms of Endozien's findings was a study of WIC's delivery system by the Urban Institute, which replicated Call's earlier evaluation with similar results concerning food sharing within the family. The USDA, however, could use neither of these studies to retard WIC's expansion. Committed to the administration's block-grant position in Congress, the USDA could not bargain for specific program reductions. The result was WIC's continued expansion and advocates' unchallenged use of the studies. Where GAO saw bad science, WIC's advocates saw only positive findings. What the Urban Institute regarded as poor targeting, the advocates saw only as increases in clinic visits and a need for further participant education to prevent food sharing. A later evaluation of WIC by the Center for Disease Control reinforced, albeit with severe qualifications, Endozien's findings. Armed with their interpretations of these studies, advocates claimed that WIC was a demonstrable success; Congress agreed wholeheartedly. The inauguration of the Carter administration meant new directors for the USDA's food assistance program. Drawn from the ranks of advocacy groups, these people supported WIC's expansion and made it a centerpiece of the department's nutrition policy. WIC easily rebuffed a
20 muckraking attack on its efficacy that appeared in the New Republic and a futile attempt by HEW to have it transferred into the Bureau of Community Health Services. There was no significant support either for denigrating WIC or for removing it from the USDA once these advocates controlled its administration. Although in positions of authoriLv at the nuns Ah.. ado.. ~ :~ ~_= `~ =__, with the OMB. ~ , a. _.. Hi ~-W=v=z r cney SClll naa co meal The USDA's initial proposal for the expansion of WIC called for a $600-million authorization in fiscal 1979. OMB scaled it back to $535.5 million and deleted the entitlement language from the bill. In the Senate, supporters introduced a bill similar to the administra- tion's proposal but retained the entitlement language and set authorization levels of $550, $800, $900, and $950 million, respectively, for fiscal years 1979 through 1981. Both the OMB and the congressional budget committees resisted the entitlement language at these authorization levels. Proponents, however, managed to convince the committees to make an exception for WIC, due to its history of impoundments and litigation. OMB still opposed the bill and recommended a presidential veto. Several lengthy pleas from the USDA and a congressional promise to reduce WIC's fiscal 1980 authorization to $750 million induced President Carter to sign the measure in November 1978. The efforts of earlier administrations to restrain WIC's growth created a context in which congressional proponents and advocates could, even years later, expand the program at a rate unprecedented for social programs in the late 1970s. THE FEDERAL INTERAGENCY DAY CARE REQUIREMENTS Historically, federal policy toward out-of-home, non- parental child care has evolved in three separate but related traditions: basic protection for a child without parental care; care for a child to enable the (generally female) parent to seek employment; and care for a child to enhance physical, emotional, and cognitive development In a sense the first tradition underlies the others as the basic responsibility of government at all levels toward children outside their families. The second tradition closely followed welfare reform measures that stressed "workfare" and consequently entailed some provision for child care while the parent or parents sought employment. Salient examples of these measures .
21 include the Welfare Reform Act of 1962, the Work Incentives Program of 1967, and the Family Assistance Plan of 1969. The third tradition, comprehensive child development, emerged from research on early childhood development and related demonstration projects that indicated the salutary effects of specific intervention upon a child's cognitive growth. This tradition culminated in the Head Start Program of 1964. Though divergent in their approaches, the latter two traditions had in common the objective of breaking the poverty welfare "cycle." At the close of 1967, three years of the most sustained social welfare initiatives since the New Deal came to an end. Urban race riots, swollen federal budgets, increas ing inflation, unprecedented increases in welfare rolls, and, as a backdrop, a seemingly interminable war in South east Asia had altered the face of politics in the 1960s. In response to what was a severe crisis in the nation's welfare system, Congress enacted the Work Incentives Prooram (WIN). WIN simplified extant work incentives for recipients: get a job or lose ail Reneges. Since mothers with preschool children were included in this program, some provisions for child care became integral to its implementation. Fearing that WIN might entail child care arrangements without regard for the child's physical or cognitive development, liberal proponents in Congress amended the WIN legislation to mandate a set of interagency regulations for all federally funded day care. They assigned this task to the Children's Bureau in HEW, a bastion of the child protection tradition. HEW Secretary Wilbur Cohen chose Head Start director Jule Sugarman to chair the interagency panel that would author the regulations. Sugarman had recently become the associate director of the Children's Bureau as part of Cohen's strategy to keep Head Start out of the U.S. Office of Education. Because of both his past and present posi tions, Sugarman had a large stake in the compensatory education approach to day care, which stressed quality over cost. He also had to appease panel members from agencies involved primarily with the employment aspect of WIN, and the quality of day care concerned this latter group chiefly insofar as it threatened to increase program costs. Sugarman's solution to this deep-seated division among panel members was to draft regulations containing high standards amenable to the developmentalist position, but sufficiently ambiguous in their specific provisions and enforceability to allow agencies with different _ _ ~ _ _ .. ~ , . _ . . ~ . ~. ~_
22 priorities to acquiesce in their promulgation. Thus, there was little debate over the appropriateness or efficacy of the requirements. Although the 1968 day care requirements set standards for many areas--health care, nutrition, physical settings in facilities, education levels for center employees, and parent participation--the focus of the requirements was child-staff ratio for preschoolers between 3 and ~ years old. Sugarman's panel chose staff ratios near the level of those of the Head Start program. Since child care is a labor~intensive undertaking, the more staff members required for a given number of children, the greater the cost. To mitigate the impact of these low ratios, Sugarman allowed all adult employees and volunteers in a center to count as care givers, and, like the other requirements, the enforcement remained at the discretion of the administering agency. It was the staff ratio more than any other requirement that became the touchstone of future controversies over the Federal Interagency Day Care Requirements. Soon after promulgation of the requirements, the Children's Bureau was stripped of its authority over HEW's day care programs (except Head Start) and the new administering agency, the Social and Rehabilitation Service (SRS), quietly reassured their clients in the states that the regulations would not be enforced. The 1968 requirements lay dormant as a political and regulatory issue until the Nixon administration proposed its innovative welfare reform measure, the Family Assistance Plan (FAP). An integral element of FAP was its massive day care program. Within HEW a tentative decision was made to lodge the day care program in the Office of Child Development (OCD), the successor to the Children's Bureau. OCD's director, psychologist Edward Zigler, received authorization from HEW Secretary Elliot Richardson to revise the requirements in preparation for the FAP day care program. Zigler recognized the essenti ally symbolic character of the requirements and sought to draft a new set with enforceable, but tempered, prescrip- tions for federally funded facilities. He held confer- ences of advocates, care givers, and scientists to aid in the drafting process. By the end of 1971, Zigler had completed a substantially revised set of requirements. During this period, congressional supporters of an enlarged child care program, apart from the FAP, intro- duced a bill to this effect. Sponsored principally by Senator Walter Mondale and Representative John Brademus,
23 the Comprehensive Child Care Act was the apotheosis of the developmentalist approach to care programs. It would provide child care services not only to the poor but also to middle-income groups. Although the child care program received the reluctant approbation of HEW, conservative criticism and the attachment of the program to a bill reauthorizing the Office of Economic Opportunity (OEO), containing many features repugnant to the administration, led to OMB and White House opposition. President Nixon vetoed the measure in December 1971. The veto transformed the political ambience surrounding the Nixon administration: it came to be perceived as antichild. Within HEW, Richardson and Zigler scrambled to shore up their credibility among advocates on the issues of federally funded child care. Their one remaining card was the revised federal requirements, which they believed might recoup their political losses due to the veto. Advocates, however, were not placated by any administration action. In addition, OMB produced its own scathing attack on Zigler's revised requirements, criticizing them as too costly and as an unwarranted federal intervention. Promulgating Zigler's revision promised no political gain for the administration; given the internal dissension, it was simpler to bury the revision . The Federal Interagency Day Care Requirements remained dormant until 1974 when a crisis over social service spending led to the Title XX amendment to the Social Security Act. Expansion of social service spending had led HEW to propose strict regulations governing federal matching funds to the states. Congressional opponents blocked enforcement of HEW'S regulations and instead imposed a $2.5-billion ceiling on the spending. The administration believed the ceiling was too generous and pressed for the regulations. The consequent stalemate led HEW's assistant secretary for planning and evaluation (ASPE) to negotiate a compromise among the interests on both sides of the issue. The result was Title XX, which incorporated some facets of the administration's new federalism, while maintaining some degree of federal control over state allocations of funds. As part of the price for their acceptance of Title XX, the AFL-CIO, at the urging of the Child Welfare League, demanded that the legislation mandate enforcement of the 1968 Federal Interagency Day Care Requirements. The ASPE acquiesced and wrote such a mandate into the bill. The specified means of enforcement was complete suspension of
24 day care funds to any state with centers out of compli- ance. In accord with its bargain, HEW promulgated a slightly revised set of requirements to take effect in October 1975. The number of day care centers out of compliance with the requirements, particularly the staff ratios, was such that any serious attempt at enforcement would have resulted in a suspension of several hundred million dollars in federal aid to the states. Across the country, state agencies and centers lodged protests with Congress and HEW. Under this pressure the House quickly passed a bill suspending the staffing requirements for six months. The measure went to the Senate Finance Committee. Its chair, Russell Long, saw in the enforcement an opportunity to enlist liberal support for his perennial project: putting welfare recipients to work. Long and Walter Mondale, a leading Senate proponent of the day care requirements, struck a bargain. In exchange for Long's support of an additional $300 million in Title XX day care funds to ease state compliance with the staffing ratios, Mondale agreed to an amendment mandating the employment of welfare recipients in the additional staff slots. The requirements would then be enforced, the states pacified, and the welfare burden lightened. Congress passed the Long-Mondale bill in January 1976. The Ford administration found the proposed bill anti- thetical to its policies. The administration opposed the increased funding, the earmarking for day care, the welfare hiring provision, and the enforcement of the requirements. At the urging of OMB and HEW, the President vetoed it. The Senate sustained the veto by a slim margin. Despite HEW's reservations, OMB conceived of the veto as an opportunity to wring some concessions from Congress on Title XX. OMB threatened to proceed with enforcement of the day care requirements unless Congress dropped the additional day care funding and revised parts of Title XX. As long as the administration could sustain a veto of legislation to provide additional funding, OMB believed that the pressure from the states could induce _ congressional compliance. OMB's strategy failed almost as soon as it was implemented. In Congress, Mondale and his opponents struck a compromise over the vetoed bill. Their revised measure suspended enforcement of staff ratios for a year and reduced the additional $300 million for Title XX to $240 million; otherwise the bill remained substantially
25 similar to the earlier vetoed measure. The compromise pleased the states; they would receive more money without enforcement of the expensive staff ratios. More import- ant, it satisfied enough senators to undermine Ford's veto threat. Congress easily passed the compromise measure, and the President had little alternative but to sign it. Congress had justified suspension of the requirements with a provision in the original Title XX legislation requiring that HEW prepare a report on the appropriateness of federal day care regulation. Until the report's completion, any final judgment on the Federal Interagency Day Care Requirements could be postponed. In HEW the task of drafting the appropriateness report fell to the ASPE. The drafting group within ASPE received little guidance from Congress or from HEW. Progress was very slow, and the report was still unfinished when the Carter administration took office. Under Joseph Califano's leadership the new administra- tion at HEW decided to present a report that would inform the public debate over the requirements but avoid any specific policy determinations. Califano was simply not prepared to commit HEW at the time the appropriateness report was due. Under these constraints the final document proved, politically at least, to be less than an outstanding product. Advocacy groups and members of Congress subjected it to harsh criticisms. The advocacy groups anticipated that the report would present a definite policy direction--but it gave none. Whatever else it might have accomplished, the report allowed Congress and HEW to procrastinate on enforcement of the requirements. After its release the department returned to the problem of the requirements. Generally, the administering agency, in this case the Office of Human Development Services (OHDS) and specifi- cally the Administration for Children, Youth, and Families (ACYF), is responsible for writing the regulations govern- ing its programs. Although OHDS was responsible for HEW's day care programs, Califano stripped that office of the duty and transferred it to a trusted deputy, HEW General Counsel F. Peter Libassi. Libassi's skill with contro- versial HEW regulations had made him an asset to Califano, and in October 1978 he assumed responsibility for the · ~ revision process. During the preparation of the appropriateness report and the transfer of responsibility for the requirements, a major study of center-based day care was completed. In 1974 the OCD had commissioned Abt Associates to conduct
26 . an $8-million study of the effects of regulatable center characteristics on children receiving care. Specifically, Abt examined the effects of child-staff ratios, group size, and care-giver qualifications on the social and cognitive development of the children involved. Abt produced a set of findings that demonstrated that group size had a more significant effect on the child than did staff ratios. Such findings had strong implications for the revision of the requirements. As long as there had been standards for day care centers, the tacit assumption of advocates and social scientists had been that low child-staff ratios were the key to high-quality care. Conversely, the chief argument against low ratios had been their high costs. Abt now intervened with scientific findings that lifted policy makers out of the dilemma. Concentration on group size enabled HEW to subdue the politically volatile issue of child-staff ratios and their costs. Decision makers in HEW found the Abt study relevant to their revision of the requirements. Its findings spoke directly to the key policy questions. Its completion coincided with the timing of these crucial decisions. Its results provided some comfort to all viewpoints: Reemphasis of the costly child-staff ratios, a significant correlation between regulatable center characteristics and children's performance, and an overall methodology that, although not flawless, was at least palatable to the research community at large. Above all, the Abt study recommended staffing and group size requirements with which the vast majority of centers were already in compliance. Those centers not in compliance could comply at relatively low cost. Finally, its recommendations accorded in large measure with the direction that the principal decision makers and interests sought to move. Not surprisingly, HEW's preliminary revision of the requirements incorporated to a great extent Abt'S recommendations. The signing of the Federal Interagency Day Care Requirements occurred in March 1980. By then Califano had been replaced by Patricia Harris. The final regula- tions mandated child-staff ratios as stringent and, in some instances, more stringent than those Abt had recommended. The final version of the requirements was in some respects more akin to the developmentalist position and a rebuff to the proprietary centers. Secretary Harris resisted a strong letter-writing campaign mounted by the proprietary centers to implement
27 less-stringent regulations. Advocates of stricter requirements convinced Harris that stiffer requirements were better for the children. To avoid any undue hardship for the day care centers, the requirements provide for a two-year phase-in period. Presumably by 1982, the Federal Interagency Day Care Requirements will, 14 years after the first set was promulgated, be enforced for the first time. THE CHILD CARE TAX DEDUCTION/CREDIT As early as 1939, taxpayers brought suit to contest the Internal Revenue Service's disallowance of child care expenses as an income tax deduction. After several defeats in court, proponents of a child care deduction marshalled their forces for the major codification and revision of the tax laws in 1953. Proponents gave three rationales for enacting a deduction for child care costs. First, care costs, as necessary expenses to the employment of parents, were deductible as business expenses. Second, most working mothers were compelled by economic hardship to seek work, and a tax deduction would serve a legitimate relief function. Third, they argued, a tax incentive would encourage mothers receiving public assistance to work to support their families. Federal welfare outlays would therefore decline. In their cause, proponents enlisted several unions, whose female members would reap some tax benefits, and some employer organizations, whose largely female labor pool would receive a work incentive, helping to ease labor shortages without raising salaries. On the principle of tax equity in business deductions, they also managed to garner the support of the American Bar Association and the American Institute of Accountants. Opposition to a child care deduction stemmed from two sources: bias against labor force participation by mothers of young children and its potential impact on the tax structure. Simply stated, many members of Congress did not want to create any incentive for mothers to forsake primary care responsibility for their children and seek employment. Though less concerned with this ethos, the Treasury Department sought to avoid any precedent in the tax code for expanding employee business deductions. Moreover, the potential revenue loss of an unrestricted deduction worried the department. One solution to these concerns was the Eisenhower administra- tion's proposal to allow only widows and widowers a
28 special deduction for work-related, child care expenses. The solution maintained the traditional parental roles in the nuclear family, precluded any precedent for an expanded definition of business expenses, and restrained potential revenue losses. Proponents adjusted their rationale for a broader deduction to meet these objections. Seizing on the notion of economic necessity, which mitigated opposition to working mothers, they sought to demonstrate that most working mothers had taken jobs out of necessity; their husbands could not earn an adequate income to support their families. A few members of Congress argued for a deduction as a matter of equity for women, but their argu- ment apparently lacked sufficient public support to be effective. Although married women with children were entering the labor force in unprecedented numbers in the early 1950s, the total number of working mothers in the labor force remained small. Only 2.25 million women with children under 18 worked--a scant 4 percent of the labor force. Indeed, proponents of a broad deduction lost in the House. On the Senate side, they were more successful. Acceding to a S4, 500 income limit and a $600 maximum for the deduction, proponents extracted a compromise provision from the Senate Finance Committee. The income limit reflected the rationale of economic necessity for the deduction; it was imposed only on dual-earner families claiming child care expenses. The limitation on the deductible amount assuaged the Treasury Department's concerns over revenue losses. Finally, the enactment of a special section in the tax code precluded use of the deduction as a precedent for future expansion of employee business deductions. The Senate's amendments were accepted by the conference committee, and the child care deduction became law in 1954. Congressional and Treasury staff estimated that the deduction might reach 2.1 million households and result in $140 million in lost revenue--an average annual savings of $67 per household. The actual impact was limited to approximately 300,000 households and a revenue loss of $21 million. The average tax saving, however, was slightly higher, $70 per year. Obviously, only a small proportion of households with working mothers benefited from the deduction. Either most of those paying for child care were unable to claim it due to the restriction, or most working mothers were not using formal child care arrangements. Members of Congress appeared to have
29 assumed that the former was true and persisted over the ensuing eight years in introducing legislation to liberal- ize the deduction. Their efforts, however, bore little fruit. The only revision they managed to enact changed the law to allow a deserted wife to take the deduction on the same basis as a widow. Less than an innovation, this revision merely redressed an oversight in the original legislation. Their fortunes changed when the newly elected Kennedy administration brought with it a Keynesian approach to fiscal policy, specifically a tax cut, and a renewed focus on social problems. In his 1963 message to Congress on tax revisions, Kennedy recommended liberalization of the child and dependent care deductions. The administration proposed to raise the income limit on dual-earner families to $7,000 and the maximum deduction to $1,000 for three or more children. The principal justification for these changes was the rise in child care costs and median income since 1954. In addition, the administration explained the need for a larger deduction by citing the extant labor shortages in professions filled predominantly by women: nursing and teaching. Since 1953, little had changed in the targeting or purpose of the child care deduction, but by 1963 there were proponents in the executive branch as well as the Congress. There were, however, indications of a shift in women's labor force participation. In December 1961, Kennedy created the Presidential Commission on the Status of Women. Though far from radical in its recommendations concerning American women, it did suggest changing the child care deduction along lines adopted in the admini- stration's proposal. Other commission suggestions were ambivalent on the larger question of working mothers and dual-earner families. . . . Members agreed that more child care facilities were required because of the increasing number of mothers in the work force, but they expressed regret that economic necessity compelled women with young children to seek employment. Thus, their recommendations for the child care deduction emphasized aid to the needy. Beyond this partial effort to understand the problems of women, there were further portents of change. Most sig- nificant of these was the Equal Pay Act of 1963, which prohibited employers from discriminating against women in compensating them for doing work similar to men's. Regardless of its efficacy, the act indicated that sexual equality was coming to be a rationale for policy initiatives.
30 . In the House Ways and Means Committee, however, this rationale remained unpersuasive. Unwilling to risk offering an incentive to mothers for seeking work, the committee refused to accept any of the administration's proposals concerning dual-earner families. They made only one significant change: raising the deductible amount from $600 to $900 for single parents with two or more children. intact. The House passed the committee's bill Wary of alienating the House Ways and Means Committee, Treasury demurred from lobbying in the Senate for a change in this relatively small section of the tax bill. Proponents of the original administration proposal were left to their own resources to change the House version. Senator Maurine Neuberger, a commission member, introduced a measure containing the administration's proposal. Neuberger argued that her measure acknowledged that the 24 million working women deserved more equitable treatment in the tax code. Although the Senate Finance Committee incorporated her amendment into their bill, they were persuaded more by the changes in child care costs and family incomes over the preceding decade than by Neuberger's plea for equality. The Senate version included a $7,000 income ceiling and a $1,000 limit on deductible child care expenses for dual-earner families. In conference the House pared it to $6,000 and $900, respectively. The measure became law in April 1963. Although the revised deduction increased the average tax benefit per household to $83, the number of households claiming the benefit dropped from 272,000 in 1960 to 254,000 in 1966. Over the next four years the number of households claiming the deduction doubled, but the tax benefit dropped to $65 per household per year. Rising real incomes, inflation, and increases in minimum taxable income narrowed steadily those households eligible for the deduction. In the 16 years since the deduction first became law, women had accelerated their entry into the labor force. By 1970, 32 million women worked and one third of these women had children under the age of 18. Between 1954 and 1970, the number of working women had nearly quadrupled and the number of working mothers had doubled. Although lobbying for a liberalized child care deduction by unions and professional organizations predominated by women persisted throughout the 1960s, it appears that the profound shift in the role of women finally eroded congressional opposition to liberalization. Ideological
31 bias against working women in general and working mothers in particular was slowly crumbling under the weight of social change. Among members of Congress, support for working women, even working mothers, became a politically attractive position in the light of organized lobbying efforts by feminist organizations and more diffuse constituent pressures. Media attention focused on the purported inequity in the tax code's severe constraints on the deduction of child care expenses. A successor group to the Commission on the Status of Women reflected the changing ethos in asserting a woman's right to choose to work at home or in the marketplace. The issue of the child care deduction was no longer framed as a question of maintaining some idealized nuclear family structure and became instead one of sexism in the tax cone. The declining social bias against working mothers undercut the principal justification for targeting the deduction on women compelled by economic necessity to work. Two other changes in federal policy further under mined this targeting. First, since 1964 the government had enacted several major categorical day care programs for low-income households. The tax subsidy to this group had been effectively supplanted by direct aid. Second, Congress had altered the tax structure itself to reduce or eliminate the tax liability of low-income households. - , . , ~ The extant child care deduction was test Becoming an anachronism. Although members of Congress had since 1963 introduced many bills to change the deduction, not until 1971 did these social and political changes coalesce to effect any revision. The revision issue came before Congress in the form of the Nixon administration's Family Assistance Plan (FAP). FAP stressed child care as a work incentive and liberal- ized the child care deduction by increasing the deductible amounts from $600 to $7SO for one child, $900 to $1,125 for two children, and S900 to $1,500 for three or more children. It doubled the income ceiling to $12,000. After passing the House the measure went to Russell Long's Senate Finance Committee. Long separated the tax revision from the FAP legislation, and the committee reported out a substantially revised child care deduction. Renamed the Job Development Deduction, it increased eightfold the maximum deductible amount for one child, doubled the income ceiling, and included housekeeping services among the deductible expenses. Since a major purpose of the deduction was to promote the employment of low-income
32 people in child care/housekeeping positions, the committee reduced the deductible amount for out-of-home child care. On the Senate floor the committee bill encountered little opposition. Senator John Tunney proposed and the Senate accepted an amendment to convert the itemized deduction into an adjustment to income--i.e., an "above- line" business deduction. This amendment would allow all eligible taxpayers to take the deduction regardless of whether they itemized deductions on their tax returns. Tunney also offered successfully another amendment to raise the income ceiling to $18,000. When one senator objected to the amended bill on the grounds that it threatened the traditional family structure, Long--hardly a social radical--defended the changes. He asserted that maintaining disincentives against working women was no longer an acceptable social policy. The beliefs about women's proper place that had circumscribed the child care deduction for nearly two decades had apparently lost their influence in Congress. When the Senate bill went to conference with the House, the Treasury Department intervened. Treasury objected to the domestic employment incentive and the new income ceiling. The increase in employment and the distribution of tax benefits to middle- and higher-income families did not justify the revenue loss. Above all, Treasury opposed the inclusion of child care costs among business expenses. The department feared the effects of an expanded defini- tion of allowable business expenses on the structural integrity of the tax code. House conferees concurred; the final bill did not include the business expense provision. The other provisions of the Senate version, however, were signed by President Nixon in December 1971; in that same month, the Mondale-Brademus Comprehensive Child Care Act was vetoed. The following year, Tunney again introduced and the Senate passed a bill to permit the child care costs to be deducted as business expenses. For the same reasons as before, the Treasury and the House Ways and Means Com- mittee joined forces to delete the amendment in confer- ence. In 1974 the Ways and Means Committee adopted most of a Treasury Department proposal to simplify the deduc- tion. The amendment would abolish the distinction between in-home and out-of-home child care, increase the income ceiling to $30,000, and limit the deductible amount to $2,400 for one child and $4,800 for two or more children. As a result of a Rules Committee action, however, their revision was never considered on the floor of the Senate.
33 The fall of Wilbur Mills from his chairmanship of the committee and the House leadership's hope for a more liberal bill in the 94th Congress led to the Rules Committee's action. In January 197S, during the worst recession since the 1930s, a new Congress took up a massive tax cut measure. The House passed the measure without making any changes in the existing child care deduction. On the Senate side, Tunney and Long allied themselves to revise the deduction. Their new version allowed taxpayers to deduct all child care expenses from their gross income adjustment or to credit 50 percent of those expenses, up to $1,200, directly against their tax liability. The Senate accepted the amendment despite its estimated - as a business revenue loss of 51.7 billion. Potentially every dollar paid for work-related child care (and housekeeping) would be exempt from federal income taxes. .... With Treasury's strong backing, the House deleted in conference most of the Senate's amendment. They agreed only to raise the income ceiling on the present deduction to $35,000. Despite this defeat the notion of a tax credit for child care expenses remained current. Proponents in the House and Senate believed that the credit was the solution to the problems associated both with the itemized and the business deductions. To claim the credit, taxpayers would not have to itemize deductions, thus eliminating the existing bias against households electing the standard deduction. And the Treasury would not have to acquiesce in a broader definition of business expenses. A credit would also simplify the current deduction--something the department favored. The House Ways and Means Committee approved a 20 percent credit on child care expenses up to $2,000 for one child and $4,000 for two or more. Commit- tee approval was eased by the infusion of new members after Mills's departure and the presence of media representatives at mark-up sessions--a post-Watergate congressional "reform." Under these circumstances, opposition to a popular tax credit was not easy. As passed by the House, the credit encountered Treasury opposition in the Senate. Without an income ceiling the department thought the revenue loss unjustified by the credit's large benefits to higher- income households. It shifted ground, however, when confronted by a Senate amendment to the credit-- refundability. On the Senate floor, Edward Kennedy introduced an amendment to the credit making it refundable to individuals whose tax liabilities were less than the
34 amount of their credit. Kennedy justified the measure as a subsidy to families headed by women whose income generated tax liabilities less than their allowable credit. Although the Senate approved, the Treasury Department and the House conferees refused to allow a social program to distort the tax structure. The depart- ment was willing to accept a credit with no income ceiling, but not a refundable one. The conference committee deleted the refundability, and the credit became law in 1976. Without an income ceiling and therefore open to all eligible households regardless of their decision to itemize deductions, the child care credit expanded greatly among households earning more than S20.000 her vear. In 1975 only 134,000 households earning more than $20,000 claimed the deductions; in 1976, 959,000 claimed it. Ninety-four percent of the additional tax saving provided by the credit accrued to this income group. In part, this distribution of tax benefits was an inevitable result of the distribution of tax liabilities; higher-income groups incur proportionally higher tax liabilities and thus benefit more than low-income groups. They also tend to spend more on child care. Many members of Congress, however, believed that the credit would aid middle- and low-income households more than the extant deduction did. The data indicate that this did not occur. Indeed, Treasury and committee staff estimates of the credit's impact predicted the actual outcome, and the department initially opposed a credit with no income ceiling on the grounds that it would unjustifiably benefit higher-income groups. There are two "wnl~n;~1~;^nc per ~ he ~:~ec,=~ ~ "~ ~ _v credit easier =~ ..~ _~ -~ If w~ ~11= bad despite its distributional impact. First, it was politically to provide tax relief for all income than to target that relief with an income ceiling. groups Second, the information on the credit's impact across income classes represented only a small part of the total information generated by staff members on the tax revi- sions. The sheer quantity of data precluded their effective assimilation by members of Congress, who relied more on their own intuitive sense of the revision's impact than on the data. A child care credit simply appeared to accord greater tax relief to low- and middle-income groups than did an itemized deduction. Since enactment of the child care credit in 1976, Congress has made only one change in this tax provision affecting children. Largely as a result of constituent
35 letters and a widely circulated newspaper column, "The TRS Is Unfair to Grandma," Congress lifted the prohibition against a credit for payments to relatives not considered employees for Social Security purposes. The change was minor, and total revenue loss from the credit increased by only 5 percent. CONCLUSION These case studies trace historically the development of three federal policy initiatives on behalf of children and their families. Each represents a different type of government action: the Special Supplemental Food Program for Women, Infants, and Children is a categorical grant program; the Federal Interagency Day Care Requirements are regulations governing the delivery of federally financed social services; and the Child Care Tax Deduction/Credit is a provision of the income tax system for individuals. Each involved a different set of agency and congressional actors and coalitions of interests, inside and outside government. Though they share roughly the same social, economic, and political context, each addressed a different set of issues concerning the appropriate role of the federal government in the lives of children and their families. Furthermore, each of these policy developments traced a different course from its initiation to its implementation. These three federal policy developments do indeed share the common characteristics of policy determination discussed in Chapter 1. Each took place over a period of time and involved a number of important decision points along the way. The Child Nutrition Act of 1966, the passage of the $20-million WIC pilot program in 1972, USDA's delays and OMB's impoundment of the WIC appropria- tions in 1976, and the several court orders requiring the USDA to spend the available funds all contributed to the establishment and growth of WIC. Similarly, the passage of WIN in 1967, the failure of FAP in 1969, and the passage of the Title XX amendment to the Social Security Act all influenced the revisions and final signing of the Federal Interagency Day Care Requirements in 1980. And the initial passage of a child care deduction in 1954, the Equal Pay Act of 1963, the expansion of a child car e deduction for dual-career families in 1963, and the failure of the Comprehensive Child Care Act in 1971 all led to the final passage and expansion of the child care tax deduction/credit.
36 In each case, individual decisions were themselves complex policy events involving interactions among many actors, interests, and factors. Each case involved a large and heterogeneous group of participants having different interests, intentions, and perceptions of the policy formation process. To ask what each case is really about is to uncover the conflicting agendas of the individuals and institutions that played a role in the development of these three federal policies and to understand the coalitions among them. The WIC legislation, for example, received the strong endorsement of powerful farm interests seeking markets for their surplus food commodities. The primary concern of the farmers was not the feeding of hungry children or the nourishment of pregnant women, yet their interests were joined with those of antipoverty and antihunger groups as well as school administrators and social service providers to support the establishment and growth of the program. Similarly in the development of the Federal Interagency Day Care Requirements, the child development research community, the anti-welfare/pro-workfare groups, and the nonprofit day care providers approached the issue of federally enforced standards from different perspectives but had similar interests in the passage of strict regula- tions governing the delivery of federally financed day care services. The proprietary providers, for whom more staff means higher costs, lower utilization rates, and smaller profits, had a very different interest in the type of regulations established. The long delay before a final signing of the requirements in 1980 is testimony to the intensity of the conflict among these groups. By putting low-income mothers to work in child care/ housekeeping jobs, the Child Care Tax Deduction/Credit received strong support not only from women's groups but also from those who were interested in lowering the welfare rolls. Its development mirrored in many respects the changing ethos of American society regarding the role of women, as they joined the labor force in increasing numbers over the past 30 years. The case history of the tax credit reflected a movement from a categorical assist- ance approach to aiding children and families to an income supplement approach not wholly, nor even principally, founded on financial need. Finally, in each case there were few, if any, direct and predictable sequences of events. The outcomes were shaped by complex interactions among a variety of factors
37 and forces: the roles and positions of key actors; the role of the media and the timeliness of research findings; the alignment of interests; the passage or failure of important pieces of legislation; and the prevailing social, economic, demographic, and political conditions. In the next chapter we examine how several of these components, both singly and in combination, influenced the policy formation processes.
