Krit Chanwong and Adam N. Michel
For decades, Republican welfare policy focused on tying benefits to work. The 1996 welfare reform made work central to cash assistance, and the 2025 One Big Beautiful Bill Act extended similar rules to Medicaid and tightened them for food stamps. The premise was that if Washington sends people checks, attaching a work requirement limits the damage unconditional transfers can do to employment, marriage, and child outcomes.
On September 5, the New York Times reported that the Trump administration is preparing to extend federal childcare subsidies to stay-at-home parents. The proposal turns staying home to provide childcare into a subsidized activity.
Adding stay-at-home parents to the eligibility list for federal child care subsidies would not require additional funding. It would simply reshuffle who receives subsidies. If every state implemented the administration’s plan and prioritized the newly eligible parents, our simulation estimates that roughly 195,000 children’s subsidies would move from single-parent households that qualify through work to households that qualify because one member is not working.
This scenario is politically and legally unlikely. But it illustrates how the proposal treats federal welfare as a tool for winning the culture war without regard for the broader economic damage caused by the policy change.
Congress should not subsidize childcare at all. But this rule does not contemplate ending the subsidy; it redirects it toward not working. The parents, both losing and gaining the transfer, would have less reason to stay in the labor force, which is the outcome that work requirements were designed to prevent.
What is the Child Care and Development Fund?
The Child Care and Development Fund (CCDF) pays for childcare, and 95 percent of children served received assistance through certificates, or vouchers, rather than grants or contracts. Federal funding comes through a discretionary block grant, mandatory grants, and matching funds. States may also spend up to 30 percent of their federal TANF block grants on the program.
States administer the CCDF and set most of the rules. Congress requires only that recipients be children under 13 with at least one working parent, family income below 85 percent of the state median, and family assets below $1 million. States may tighten any of these rules. Tennessee and Washington, for example, set income eligibility thresholds at 60 percent of the state’s median income. States also define qualifying activities differently. In 2023, Massachusetts counts SNAP employment and training programs as qualifying activities, while Maine only counts employment and job search. Every state requires all parents in the household to be engaged in an eligible activity.
States are also not required to serve every eligible family, and none of them do. By our estimates, states cover about 15.3 percent of their eligible populations on average. Congress mandates priority for very low-income families, children with special needs, and children experiencing homelessness, and allows states to define the first two terms. Beyond those groups, priority is entirely a state choice. Missouri prioritizes all eligible families equally. Mississippi gives priority to military families and teen parents in school.
Covering Stay-at-Home Parents Requires Cutting Working Parents
The text of the new CCDF rule has not been released, so we don’t know exactly how the policy will be implemented. According to the New York Times, it would create a new option for states to cover “parent-based childcare” for families that already qualify under state rules. The apparent goal is to create a basic income of up to $9,000 for families with one parent at home.
This change would increase the eligible population by roughly 40 percent in the average state (Figure 1). States like Utah would see nearly 50,000 additional children qualify, a 79 percent increase in its eligible population. On the other end, Vermont would see only 2,615 additional children qualify. This contrast is mostly driven by demographics: Utah has the lowest average age in the United States, while Vermont has one of the highest.
With funding held fixed, prioritizing newly eligible stay-at-home parents necessarily reduces subsidies available to current recipients. Giving stay-at-home applicants higher priority would displace about 233,000 children in 2024, which is about 15 percent of the children already receiving subsidies nationally (Figure 2). Roughly 195,000 of the displaced children would be in single-parent working families.
Treating stay-at-home applicants the same as the non-priority population displaces about 200,000 children, 168,000 of whom are in single-parent homes. There is no version of this policy that funds stay-at-home parents without taking childcare subsidies away from working parents. Expanding the eligible population by 40 percent may also build a constituency for more funding, potentially expanding a subsidy program that shouldn’t exist at all.
The effects of this new policy change differ widely across the states. In Utah, covering stay-at-home parents would prevent more than a third of the state’s single-parent children from receiving subsidies they currently get. On the other side, enacting the policy in West Virginia would displace about 2 percent of the single-parent households currently receiving subsidies. The disparities are mostly due to each state’s program design. In 2023, a family of two in Utah can earn up to $4,853 per month and still qualify for childcare subsidies, which is more than twice West Virginia’s limit of $2,114.
And the effect of this policy change is not just a simple redistribution of resources from one family to another. Rather, it would likely reduce female labor force participation rates. A single mother who loses her childcare voucher must either absorb higher daycare costs or reduce work (potentially increasing her reliance on other transfer programs). On the other hand , a married couple, likely earning a higher income, receives a check contingent on one of them staying out of the labor force. In both instances, the policy change disincentivizes work and promotes welfare use in its stead.
The above stylized example also illustrates another important point: that these policy changes shift the subsidy up the income distribution. Table 1 shows that families in the bottom two income deciles of the eligible population (making below $44,000) lose subsidies on net, while families earning $61,000 to $150,000 gain. This is because one-earner married households eligible for the new benefit tend to have higher incomes than working single-parent households.
To be clear, the status quo is not ideal. Federal childcare subsidies have harmful effects, mostly through reinforcing stringent state regulations, crowding out alternative childcare providers, and increasing fiscal costs. The best policy is simply to eliminate CCDF and end all federal subsidies.
Some have also asserted that expanding eligibility changes policy in a way that treats stay-at-home and working families similarly. This argument overlooks the tax code. The care a parent provides at home is never taxed (and shouldn’t be). The care a parent buys on the market is paid for out of wages, after income and payroll taxes are paid. This makes the same hour of childcare more expensive to purchase than to produce at home (although the tax code partly offsets that penalty through childcare credits and other tax benefits ). The tax code penalizes market work and implicitly subsidizes staying at home. The new rule would exacerbate this inequity, providing an explicit subsidy on top of the implicit one.
Setting a Bad Precedent
None of this is likely to happen on a meaningful scale. Instead, states that want to follow the president’s directive can adopt the new eligibility category and put stay-at-home parent applications at the back of the line. Politicians could claim to have expanded support for stay-at-home parents without meaningfully cutting many working families.
And whether the administration can do any of this is also legally dubious. When it created CCDF, Congress carefully defined categories of eligible childcare providers. It did not include parents caring for their own child. That omission should raise questions about whether the administration can create a new category without Congress.
The bigger policy concern is that a Republican administration proposed changing a transfer program to include not working as a qualifying activity. Historically, the work requirement was the compromise that ameliorated some of the worst effects of the welfare state. Trading that condition for a culture-war win concedes the argument against unconditional cash transfers, an argument this administration has conceded elsewhere, such as with the proposed $5,000 dividends.
The president should work to shrink welfare programs, including childcare subsidies, rather than expanding them to new constituencies and weakening attachment to the labor force.