Tuesday, March 12, 2019

White House proposes to spend approximately nothing on early childhood education to minimize taxes for top 0.1 percent (Michael Simkovic)

NPR reports that the Trump administration has proposed a meager one-time increase in funding for childcare / early career eduction equal to approximately 0.0045 percent of GDP ($1 billion out of $22 trillion estimated 2020 GDP) or about 0.001 percent of household networth.  Total federal spending would increase to $5.4 billion, or 0.0225 percent of GDP. 

In contrast, Senator Elizabeth Warren has proposed to spend approximately $70 billion per year on childcare and early childhood education--13 times as much as President Trump.  Warren's plan would be financed with approximately one third of the revenue generated by an annual ultra-high net-worth wealth tax of 2 percent on personal fortunes above $50 million, and 3 percent above $1 billion.  It would therefore cost 99.9 percent of households nothing in increased tax burdens.

The White House explained that its less generous proposal was motivated by a desire to avoid spending "unsustainable amounts of taxpayer dollars" and instead come up with a plan that would be (politically) "viable."  

Ultra-high net-worth taxes approximately 4 to 6 times as high as those proposed by Senator Warren are likely financially sustainable, given typical returns on leveraged investment portfolios favored by the ultra-wealthy and Senator Warren's willingness to increase enforcement budgets and impose exit taxes.  (For those who are more visually inclined, the voluntarily publicized personal spending habits of U.S. billionaires (see also here or here), though not quite as extreme as Louis XIV of France, suggest that perhaps some might be able to afford to pay a bit more in taxes while still enjoying a comfortable lifestyle).

Recent corporate tax cuts signed by the Trump administration cost approximately $100 billion per year in foregone revenue, according to the JCT.

According to NPR, an unofficial Whitehouse spokesperson, Ivanka Trump, claims that limiting public funding for childcare and loosening government oversight and reducing minimum quality requirements for childcare will "encourage innovation."

Peer reviewed studies have long found that stricter regulation is associated with higher quality childcare.

High powered studies with experimental designs which are ideal for causal inference have repeatedly found evidence that smaller class sizes improve outcomes.  Indeed, Kindergarten class size has a large and significant effect on college attendance decades later, and kindergarten teacher experience predicts earnings later in life (see also here).  Returns on public investment in education are generally more than high enough to pay for themselves.

A recent study sponsored by the free-market think tank, the Mercatus Center at George Mason University claims that deregulating childcare could reduce costs without reducing quality, but is based on remarkably scant evidence.  According to the authors, deregulation can have a salutary effect because factors such as the number of care givers per child and the level of training of caregivers actually have no relationship to quality. 

The Mercatus study presents no novel findings about quality, and instead relies on a selective review of the literature, with an emphasis on underpowered studies and specifications that (unsurprisingly) did not always produce statically significant results.  Even then, the analysis finds that higher wages for caregivers and other factors that increase costs are in fact associated with higher quality.

The only evidence presented in the Mercatus study is a simple regression relating tuition costs to regulations mandating higher caregiver training levels and smaller class sizes. In other words, Mercatus finds only evidence that quality comes at a cost, not that deregulation reduces costs without impairing quality.

The Mercatus Center at George Mason University is sponsored by donations from wealthy conservatives that in the recent past have been structured to benefit only researchers with economically conservative views.


Guest Blogger: Michael Simkovic, Of Academic Interest, Science, Web/Tech, Weblogs | Permalink