Michael L. Lahr, Rutgers Economic Advisory Service (R/ECON™)

In a state such as New Jersey, where the cost of living is about a third more than the national average, childcare costs are largely out of reach for many families who rely on childcare in order to join the workforce. Research from Rutgers University’s National Institute for Early Education Research states that children who attend high-quality preschools tend to perform better later in their school careers. Consequently, quality early childhood education is one of the most important factors for social and economic mobility. Childcare subsidies would go a long way towards helping families get out of poverty and reducing the potential for dependency in the next generation of taxpayers.

The next question becomes how the state will fund childcare subsidies. New Jersey can look to Philadelphia for a solution. Philadelphia has instituted a tax on sugary beverages that is largely used to subsidize daycare for qualifying families. The purpose of the tax is two-fold: it raises revenue for the state and it reduces consumption of sugary beverages that have been proven to cause adverse health effects, especially in poorer communities who tend to consume more sugary beverages. Although this tax is enacted on wholesalers, it is effectively a retail tax, as its incidence almost entirely passes through to consumers. In response to the price rise, demand for sugary beverages in Philadelphia decreased by 31-46%. Additionally, economic outcomes were rather neutral, with gains in jobs and income from daycare services cancelling losses by distribution-related industries.

The moral of this story is that New Jersey’s lawmakers should think about replicating the Philadelphia story. Taxing sugary beverages and subsidizing child daycare to qualifying providers is a win-win-win game. New Jerseyans are apt to be healthier, rely less on public assistance, and have more children who are better prepared to meet their futures.

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