Ohio advocates and policymakers have recently proposed important new policy initiatives to help the state’s struggling working families. This policy brief models three reforms that promise to significantly improve the economic security of low-income Ohio families with children.
First, we examine the effect of introducing a free and universal prekindergarten program for four-year-olds on families’ out-of-pocket child care costs. Child care costs are a major expense for working parents.
Second, we investigate the problem of the “canyon effect” in child care subsidy policy and identify solutions. As described by Policy Matters Ohio, the canyon effect occurs when a working parent who loses a child care subsidy—because she loses her job, for example—must take a job at a lower wage to qualify again for the subsidy. Because child care is so costly, a subsidy can make the difference between being able to work or not, so the parent has a strong incentive to recover child care assistance, even if it means moving down a career ladder.
Finally, we model the effect of improving the state Earned Income Tax Credit (EITC) on the economic well-being of Ohio working families. The Ohio EITC is currently set at 10 percent of the federal credit and is not refundable, meaning that a family that has no income tax liability does not receive the credit. The improved EITC would be refundable and equal to 30 percent of the federal credit; it would also remove an existing cap on the credit for earnings above a very low level.
The impact of each of these reforms on the economic security of representative low-income families in the state is estimated with the National Center for Children in Poverty’s 2015 Ohio d (FRS) policy modeling tool, updated with the assistance of Policy Matters Ohio.