Children at Mariposa Learning Center in Fitchburg. (2023 file photo by Erik Gunn/Wisconsin Examiner)

While providers, their supporters and Democratic lawmakers are pressing for a substantial continuing direct state investment in Wisconsin’s child care sector, Republicans in the Legislature are pursuing another route: expanding a child care tax credit for employers.

So far, child care providers and some small business owners aren’t interested.

The legislation circulated in draft form in early May. On Friday, May 30, it was formally introduced in the Assembly (AB 283) and the state Senate (SB 291).

“We really think it’s an important opportunity to reward employers for getting involved in child care,” Neil Kline, who says he encouraged GOP lawmakers to draft the tax credit legislation, told the Examiner.

Kline is executive director of Family Friendly Workplaces, a nonprofit based in Woodville that works with businesses in Burnett, Pierce, Polk and St. Croix counties. The organization certifies employers as family-friendly “to support their recruitment and retention efforts,” Kline said. To that end, one of its missions is focusing on workforce-related problems such as housing and child care access.

In early May Sen. Howard Marklein (R-Spring Green) and Rep. Karen Hurd (R-Withee) circulated the proposed bill seeking cosponsors.

The legislation was written “to encourage more businesses to invest in child care in their communities,” Marklein and Hurd wrote in their May 12 cosponsor memo. “These changes will increase the number of available child care slots and provide more options for families.”

Demanding direct support

The legislation has been introduced while child care providers and Democrats are continuing their campaigns to revive direct support for the child care sector.

During the COVID-19 pandemic the Evers administration used federal pandemic relief funds to pay child care providers monthly stipends through the Child Care Counts program. The $20 million a month that the state doled out helped providers stabilize child care, increasing workers’ pay while keeping care more affordable for families.

When Evers tried to use $360 million from the 2023-25 budget to continue Child Care Counts with state money, none of the Legislature’s Republican majority got behind the measure. The governor was later able to reallocate other federal dollars to fund Child Care Counts through June 2025, but at half the original amount: $10 million a month.

With lawmakers now writing the 2025-27 budget, Evers, child care providers and their advocates have been campaigning for $480 million to continue the program for the next two years. A survey commissioned by the state and conducted by the University of Wisconsin Institute for Research on Poverty forecast closures and tuition hikes if the state payments end.  

At their very first budget vote, however, Republicans on the Legislature’s Joint Finance Committee removed the proposal along with more than 600 other items Evers had included in his budget draft. The GOP outnumbers the Democrats 3 to 1 on the committee.

Democratic lawmakers responded by circulating a draft stand-alone bill to reinstate the Evers proposal.

“Child care providers are facing increasing cost to operate while still making poverty-level wages,” said Sen. Sarah Keyeski (D-Lodi) at a May 22 press conference to announce the Democrats’ bill. “This has made it extremely difficult to hire and retain quality staff. [Meanwhile] providers desperately want to avoid rising costs and rates on families already struggling to afford child care.”

Child care as business investment

As yet no Republican lawmakers have gotten behind the Child Care Counts proposal.

Instead, the bills that Marklein and Hurd have introduced would make changes to the Business Development Tax Credit, which is provided through the Wisconsin Economic Development Corporation (WEDC).

That tax credit is granted to reward a variety of business investments and reduces the state income tax that a business pays by the amount of the credit.

Currently, a business that spends money on starting a child care program for its employees can get up to 15% of that cost taken off its tax bill. The credit applies only to capital investments, however — building or remodeling the child care facility.

“Unfortunately, we have heard that the current program parameters limit the incentive for businesses to invest in child care programs,” Marklein and Hurd wrote in their co-sponsor memo. “While many businesses may want to provide child care as a benefit to employees, the current credit limitations reduce the incentive for this investment.”

In addition to capital expenditures, the draft bill would extend the tax credit to cover 15% of several other costs:

• An employer’s spending on child care program operations;
• Spending to reimburse employees for their child care expenses;
• Spending to buy or reserve openings for its employees at a child care center;
• Contributions an employer makes to an employee’s flexible spending account for dependent care.

The draft bill also allows the tax credit for “any other cost or expense incurred due to a benefit provided by an employer to facilitate the provision or utilization by employees of child care services.”

The tax credit would be refundable: Even if the credit totals more than the employer pays in taxes, the company would get its full value back from the Wisconsin Department of Revenue. 

It also would give a refund to nonprofit employers, which don’t pay taxes.

“While not a silver bullet, these changes are another step in the right direction to address the child care issue in Wisconsin,” Marklein and Hurd wrote in their memo.

Kline, the Family Friendly Workplaces director, said the proposal would help engage employers more directly in addressing child care shortages.

“We really think it lays the groundwork for ongoing, self-sustaining support of child care in Wisconsin,” he said. “The primary goal is to help introduce new money into the child care — really, the child care ecosystem — by rewarding employers to support the ongoing expenses of child care, because the reality is that the sector needs additional money in it.”

Kline said he understands that “the ongoing operational economics” is a central problem for the child care sector. “That’s why we are so focused on helping employers find avenues and be rewarded for helping defray the expenses that are related to child care and helping support that ongoing operational side of child care.”

Chilly reception

To date the existing child care employer tax credit hasn’t had any takers, according to the WEDC. In January, as part of an overall evaluation of the state’s business development tax credit, an outside consultant told WEDC that “due to the high operational costs of childcare centers, affordability would likely be better achieved through subsidy as opposed to a tax incentive.”

The proposal to expand the tax credit isn’t gaining traction with providers or small business owners.

Main Street Alliance, which organizes small business owners to advocate for state and national legislation, has already announced objections to the bill.

“These kinds of programs and tax credits are often advantageous for employers who can afford compliance and the procedural costs and have economies of scale,” said Shawn Phetteplace, MSA’s national campaign director. That leaves out the typical small business, said Phetteplace, who sent lawmakers a memo calling the proposal “deeply unserious.”

Evan Dannells, a chef and owner of two Madison restaurants, questioned how a relatively small business like his would benefit from the tax credit.

Of his eight full-time employees, one has two children. Most of the others are graduate students. Directly paying for the one employee’s child care, even if receiving a tax credit, doesn’t feel fair to the others who don’t have that expense, Dannells said.

“If you put the onus of taking care of child care on the employer, the employer won’t hire people with children,” he said.

Dannells considers the cost of child care a legitimate use of his tax dollars. “This is why government should be doing this,” he said. He observed that children are required to go to school when they reach the age of first grade. “Why can’t we take care of them from age 1 to 5?”

While the tax credit may make it easier for a particular company’s employees to afford child care thanks to the employer’s support, skeptics of the proposal say that assistance only helps some people — not the system as a whole.

“That doesn’t help keep the doors open,” said Heather Murray, who operates a child care center in Waunakee. “We’re hitting crisis mode and centers are shutting down now, and a quarter of them will be gone if [Child Care Counts] isn’t renewed. We need the investment to go directly to providers to make sure that the doors stay open.”

Child care as a public good

National child care analyst Eliot Haspel is also skeptical. Haspel is a fellow at Capita, a think tank that works in the area of family policy. In February 2024, the think tank New America published his report raising questions about the impact of various employer-sponsored child care benefits.

Haspel views child care as a public good that benefits society broadly. For that reason, he contends, it should serve families regardless of whether they work for an employer able to fund a child care benefit.

“Small business will never be able to offer a really robust child care workplace benefit,” Haspel says. That puts small businesses and small business employees at a disadvantage if supporting child care is primarily an employer’s responsibility, he argues.

The large number of low-wage workers and “gig workers” “also raises the specter of increasing inequalities,” he writes in the New America report.

Haspel says that tying child care to a job also locks people into a job — or strands them from needed care if they lose their job. It also disrupts children’s early education at a time when they need consistent and reliable connections with their caregivers, advocates say.

“It’s really bad for workers and it’s really bad for kids for your child care to be tied to your employment,” Sen. Kelda Roys said at the Democrats’ May 22 press conference.

Tying health insurance to employment has been “a disaster,” Roys said. Health care is “rationed based on the job that you have or the wealth that you have,” she added, “and we do not want to exacerbate the current problems in our child care system by tying it to people’s employment.”

In his New America report and in an interview, Haspel says the problem isn’t providing child care at the workplace.

“I’m not against the idea of onsite child care — that can make all the sense in the world,” he says. “You can have an onsite center as part of a publicly funded system” — one to which employers contribute as taxpayers.

Focusing on the employer, however, carries with it “an opportunity cost,” Haspel says. “The more we say child care should be solved primarily through employers, the harder it is to say we need a fully public system that is universal and reaches everyone.”

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Corrine Hendrickson, child care provider and advocate, waits to speak at a rally in front of the state Capitol Tuesday, May 13. (Photo by Erik Gunn/Wisconsin Examiner)

Republican lawmakers have filed a proposed bill expanding an existing state business development tax credit related to child care. Child care providers who want to see a permanent state investment in their work said the bill was an inadequate gesture.

The state’s current business tax credit for child care applies only to capital expenditures for an employee child care program. The proposed bill would expand that to include other costs, including operating a child care program for employees, reimbursing employees for child care costs and other costs related to child care benefits.

“These changes will increase the number of available child care slots and provide more options for families,” wrote Sen. Howard Marklein (R-Spring Green) and Rep. Karen Hurd (R-Withee) in a memo seeking cosponsors. “While not a silver bullet, these changes are another step in the right direction to address the child care issue in Wisconsin.”

Critics dismissed the measure as inadequate.

In a press release Rep. Randy Udell (D-Fitchburg) sent out after the Assembly’s floor session Tuesday, he noted that last week the Legislature’s Joint Finance Committee “shot down 612 budget items including $480 million in childcare funding, and they proposed a childcare tax credit in its place that would benefit corporations instead of childcare providers under threat of closure.”

Shawn Phetteplace, national campaigns director for Main Street Alliance, sent a memo to lawmakers Tuesday also dismissing the proposal.

“Providing a 15% refundable business tax credit for businesses providing child care benefits will not appreciably increase access to child care for Wisconsin workers,” Phetteplace wrote. “It will simply be another tax break for large corporations. A similar credit exists at the federal level, the 45F credit, which is widely regarded as not achieving the goal of increasing affordability and accessibility to childcare for employees.”

Corrine Hendrickson, co-founder of Wisconsin Early Childhood Action Needed (WECAN), said at a Capitol rally Tuesday she would like to meet with Marklein, who cochairs the finance committee, as well as Rep. Mark Born (R-Beaver Dam) the other cochair.

The business tax credit is refundable: The credit recipient receives the full value of the credit back from the state, even if it is more than what the recipient owes in taxes. Hendrickson criticized the lawmakers for “refusing to do the same for our hard-working families with the child and dependent tax credit.”

The state’s child and dependent care tax credit for families, which was expanded in legislation enacted in March 2024, is not refundable. That effectively makes the tax credit worth much more to people with higher incomes than to those with lower incomes, as the Wisconsin Examiner has previously reported.

“We are not going to accept anything more that will entrench the wealthy and well connected into our system of having success in life,” Hendrickson said.

Born issued a statement this week that declared Republicans were focusing on other alternatives to the proposal for $480 million in subsidies for child care providers.

“Legislative Republicans have consistently supported a targeted approach to helping families afford child care, build provider capacity, and support recruitment of child care professionals,” Born said. “Parents are best equipped to make decisions about the needs of their children and Legislative Republicans are committed to providing parents with options, helping families directly make child care more affordable.”

Born said the Legislature spends “almost $1 billion” for child care. 

Hendrickson said that virtually all that money is from the federal government and simply passes through the state budget. Only about $24.4 million comes from the state as a required match.

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