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key takeaway

California has a significant unmet need for affordable child care, with only a fraction of eligible children receiving subsidized care. The state needs to make significant and sustainable investments in expanding subsidized child care options, particularly for infants and toddlers.

Affordable child care is critical for supporting California’s families to grow and thrive. Within California’s mixed delivery system, the California Department of Social Services (CDSS) provides child care programs at low- to no-cost for families with low incomes. For far too long, the demand for subsidized child care has outpaced supply. Specifically:

  • In 2015, 85% of children eligible for subsidized child care did not receive services.
  • In 2017, 89% of children eligible for subsidized child care did not receive services.

An analysis of 2022 data shows an unfortunate continuation of this trend, underscoring the need for a larger supply of subsidized child care spaces in California. 

Child Care and Development Transition

This analysis only includes child care programs within CDSS. The 2020-21 Budget Act transferred the child care and development programs from the California Department of Education (CDE) to CDSS. This transfer was intended to support a more integrated and coordinated system of care that could more effectively serve children, families, and the workforce. Thus, as of July 1, 2021, CDE only maintained oversight of two early learning programs: 1) The California State Preschool Program (CSPP); and 2) Transitional Kindergarten (TK) — both of which are now a part of CDE’s “Universal Pre-K” system. Previous Budget Center analyses of unmet need included CSPP. However, given the transition of programs from CDE to CDSS and related changes to eligibility requirements and other aspects of these programs, this analysis does not include CSPP. A forthcoming publication will explore eligibility and enrollment specific to CSPP. 

What is the unmet need for child care?

In 2022, only one in nine of California’s children eligible for child care actually received services. The number of children eligible for subsidized child care has grown from 1,479,000 in 2015 to 2,161,000 in 2022. While the number of new subsidized child care spaces has increased — notably, 146,000 new spaces were added since 2021-22 — the number of new slots has not kept pace with the growing demand. The chart below provides a visual of the unmet need for child care in California.

What are the implications of failing to meet California’s child care needs?

Families of color in California have historically been denied access to key services and opportunities. These inequities continue to negatively impact Californians of color as recent analyses have shown that poverty rates nearly doubled for Black and Latinx adults in California from 2021 to 2022. Moreover, Californians of color are more likely to struggle with paying for basic expenses.

The chart below shows that children of color are disproportionately eligible for subsidized child care. As the supply of subsidized child care continues to far outpace demand, families of color are most impacted by this insufficient supply. Therefore, the lack of subsidized child care continues to exacerbate the historical and unjust inequities that impact Californians of color.

CDSS’s child care and development programs serve ages zero to twelve. Within this age range, the cost of providing care is the highest for infants and toddlers; yet, providers that serve infants and toddlers typically make less money. Given this context, as well as the potential impacts of TK expansion on the mixed delivery system, there is concern around a diminishing supply of infant and toddler care options.

The chart below shows that across all age groups, only a fraction of those eligible for care are actually enrolled. However, children ages 0-2 are the only age group that is solely served by CDSS’s child care programs (other age groups have access to programs hosted by CDE). Thus, the unmet need for child care is particularly acute for infants and toddlers and failure to expand subsidized child care may disproportionately impact this age group. While school-age children have access to alternatives, it's important to note that the unmet needs stretch beyond infants and toddlers.

How can policymakers address the unmet need for child care?

While the supply of subsidized child care has increased since the dramatic cuts made during the Great Recession, California is still a long ways away from meeting families’ child care needs. Specifically, to help address the unmet need for child care, the 2021-22 enacted budget set a goal of adding 200,000 new child care slots. While 146,000 of these slots have been funded, slot expansion has been delayed for the last two fiscal years. The governor maintains his commitment to fund all 200,000 slots by 2026-27; however, the timeline for funding the remaining 54,000 slots by the deadline remains unclear.

The administration can increase the number of new slots in the 2024-25 budget to make immediate and needed progress on addressing the unmet need for child care. The unmet need for child care in California is an issue that requires state leaders' attention regardless of the cyclical ups and downs of the state budget. State leaders should make significant and sustainable investments in increasing access to affordable child care that meets families’ needs. Failure to do so keeps thousands of families — mainly families of color — on child care waiting lists, hampering their economic mobility and ability to find nurturing care for their children.

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key takeaway

California corporate profits reached a record-breaking $368 billion in 2021, but they pay just about half of what they did in the early 1980s in state taxes as a share of those profits. Building a tax system that is more fair will help Californians — whose wages have not kept pace with inflation or record profits — make ends meet.

All Californians should have the means to keep food on the table and a roof over their heads, and to invest in education and advancement for themselves and their families. California’s businesses have a role to play in achieving this vision, both in providing well-paying jobs and in contributing their fair share to state revenues to support public services — including a safety net for people during times of unemployment, disability, or when time is needed to care for family. However, while corporations have seen skyrocketing profits in recent years, the typical California worker’s earnings have barely kept up with inflation.

California corporate profits reached $368 billion in 2021, reflecting a 155% increase since 2002 in inflation-adjusted terms. In contrast, a typical California full-time, year-round worker only saw their employment earnings increase by 13% during that time period after accounting for inflation.1The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

Large highly profitable corporations can afford to contribute their fair share in taxes.

Corporate profits are highly concentrated among a small group of very profitable corporations. For example, less than 1 out of every 100 corporations (just 0.6%) made $10 million or more in annual profits in California in 2021. However, this small share of corporations accounted for more than 60% of corporate profits statewide.

Those corporations with profits of at least $10 million saw their state profits more than double from $113 billion to $234 billion between 2017 and 2021. Corporations with profits of $5 million to $10 million also saw a near-doubling of their profits during that same period. At the same time that profitable corporations were doing exceedingly well, many Californians — particularly those with low incomes and Black, Latinx, Pacific Islander, and other Californians of color — suffered the devastating health and economic consequences of COVID-19, and continue to struggle with the high costs of necessities. Californians have seen their purchasing power fall with rising prices in recent years, a phenomenon which some researchers suggest has been amplified by corporations keeping prices high even as their costs declined and their profit margins increased.

Existing Tax Policy Exacerbates Inequities

Recent research shows that federal and state tax systems actually reinforce the concentration of profits among a small share of large corporations. In other words, after-tax profits are even more concentrated at the top than pre-tax profits. For example, the largest 10% of US public non-financial corporations held 95% of domestic corporate profits before federal and state taxes, but 99% of profits after taxes, according to analysis by the Roosevelt Institute. This is not surprising considering that some of the biggest corporate tax breaks provide disproportionate advantages to large and multinational corporations, and these corporations can afford to hire expensive accountants and lawyers to help them game federal and state tax systems.

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More equitable state taxation of corporations would counteract the outsized advantage of corporations with the most market power and raise needed state revenues for critical public services to benefit California’s communities. It could also increase racial and economic equity in the state, since corporate profits flow to corporate stockholders, who are disproportionately white and wealthy. The equity impacts would be even greater if the revenues raised were used to support Californians who have been economically disadvantaged by racism and discrimination.

Big corporations can afford to contribute their fair share in taxes. Corporations pay about half of what they did in the early 80s in state taxes as a share of their California profits. Plus, California corporate taxes are a minuscule share of their overall business expenses.

Requiring immensely profitable corporations to contribute more to supporting state services and combating corporate tax avoidance would level the playing field among businesses and help create a more equitable state for Californians.

  • 1
    The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

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key takeaway

California’s unemployment benefits fall short, leaving many struggling to make ends meet when they lose work. State policymakers can raise unemployment benefits, ensuring this crucial support system adequately sustains Californians during job loss.

Unemployment benefits provide a critical safety net for many workers who lose their jobs, helping them to support their families while they seek to reenter the workforce. However, state unemployment benefits have not been raised in two decades and currently don’t provide enough money for Californians – particularly those with low incomes – to cover the cost of living. This points to the urgent need for California to increase state unemployment benefits so that workers can make ends meet when they lose work.

California’s unemployment benefits only replace up to half of a worker’s lost earnings. But many workers struggle to pay for food and rent even while working full-time. Covering the costs of living on half of their earnings is impossible. For the majority of California renters with low incomes who spend at least half of their income on rent, their entire unemployment benefit would go to rent if they don’t have other income sources. Or it might not even cover the full cost of rent, leaving them in debt, at risk of eviction, and with nothing left over to pay for other basic needs. For example, a worker who loses a full-time minimum wage job (at $16.90-per-hour in Los Angeles County) receives just $1,465 in monthly unemployment benefits, which falls $69 short of covering rent for a studio in Los Angeles.

Workers of color, including American Indian, Black, Latinx, and Pacific Islander Californians – and particularly women – are especially at risk of being unable to support their families while out of work because many have been segregated into low-paying jobs where unemployment benefits are too low to cover basic living costs. Insufficient benefits pose a particularly significant threat to the economic security of Black Californians, who consistently face twice the unemployment rate of white workers due to hiring discrimination and other barriers to work created through centuries of structural racism.

Losing a job would be less devastating if Californians could count on getting unemployment benefits that allow them to cover the costs of rent, food, and other basic needs while they search for work. State lawmakers should increase state unemployment benefits, especially for low-paid workers, and make sure that businesses uphold their responsibility to adequately fund this critical safety net for their workforce.

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key takeaway

Despite record profits, corporations pay a tiny fraction of their California expenses in taxes — just 0.11% on average. Modest corporate tax increases could generate substantial revenue to boost income for families in poverty, fund crucial public services, and address economic inequality, especially for Californians of color.

State tax revenues make possible the public services and infrastructure that Californians rely on, like education, roads and transit, and the social safety net to help families and individuals make ends meet during times of financial instability. Corporations doing business in California benefit from the state’s resources and investments and should be expected to fairly contribute to state revenues.

Corporations Underpaying Their Fair Share

Meanwhile, corporations have been paying around half of what they did a generation ago in state taxes as a share of their California income — less than 5% in 2019 compared to 9.5% in the early 1980s — due in part to state tax rate reductions and the creation and growth of corporate tax breaks over the years. This is despite the fact that pre-tax corporate profits have been near record highs (as are after-tax profits).

In addition, the taxes these corporations pay to the state on their California profits are an incredibly small fraction of their expenses — just 0.11% on average from 2017 to 2019, according to a Budget Center analysis of Franchise Tax Board data.1Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years. In other words, just over one cent of every $10 of what these businesses spent went to California corporate taxes.

Even if state leaders increased corporate taxes to protect and strengthen public services — by raising tax rates on the most profitable corporations and/or limiting corporate tax breaks — these taxes would still represent a small fraction of total business expenses. For example, if corporations had contributed $2.5 billion more in taxes each year, their California corporate taxes would have made up 0.13% of total business expenses. If they had contributed $5 billion more, these taxes would have made up 0.16% of their expenses.

To put this in perspective, $2.5 billion in additional revenue could boost the incomes of families by more than $2,000 for every child living in poverty in the state, and $5 billion could provide more than $4,000 per impoverished child. However, it would not substantially increase the costs of doing business for profitable corporations and would be unlikely to drive companies’ decisions about how much business to do in California. This is especially true considering that corporations’ tax obligations to the state are based on how much of their sales are made in California, and California provides a considerable customer base.

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Substantial Benefits for Struggling Californians

While a tax increase of either size would be manageable for wealthy corporations, the resulting revenue could be very meaningful for Californians struggling with the basic costs of living, including housing, food, child care, and health expenses. Many of these Californians have been locked out of economic security in large part due to the low wages, insufficient benefits, and few advancement opportunities provided by some of these very wealthy corporations. Californians of color have been particularly excluded from economic opportunities due to structural racism and discrimination in employment and other arenas.

Corporations Can Afford to Contribute More

Highly profitable businesses in California benefit from having healthy, well-educated workers who can afford to live near their jobs and have the necessary care and education for their children while they work. These corporations can afford to pay a small increase in state corporate taxes to support caring for and educating California’s children and youth, keeping the state’s residents healthy and housed, and ensuring they don’t fall through the cracks when faced with a crisis.

  • 1
    Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years.

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