I
105TH CONGRESS
2D SESSION
H. R. 3292
To amend the Internal Revenue Code of 1986 to increase the credit for
dependent care services necessary for gainful employment and to provide
an equivalent benefit for families where one parent stays at home to
provide child care for a child under the age of 4 and to amend the
Social Security Act to provide grants to States to improve the quality
and availability of child care, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 26, 1998
Mrs. KENNELLY of Connecticut introduced the following bill; which was re-
ferred to the Committee on Ways and Means, and in addition to the
Committee on Education and the Workforce, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to increase
the credit for dependent care services necessary for gain-
ful employment and to provide an equivalent benefit for
families where one parent stays at home to provide child
care for a child under the age of 4 and to amend the
Social Security Act to provide grants to States to im-
prove the quality and availability of child care, and for
other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Investment in Children
Act of 1998’’.
SEC. 2. INCREASE IN DEPENDENT CARE CREDIT; EQUIVA-
LENT BENEFIT WHERE ONE PARENT STAYS
AT HOME TO PROVIDE CHILD CARE FOR
CHILD UNDER AGE 4.
(a) IN GENERAL.—Paragraph (2) of section 21(a) of
the Internal Revenue Code of 1986 (relating to expenses
for household and dependent care services necessary for
gainful employment) is amended to read as follows:
‘‘(2) APPLICABLE PERCENTAGE DEFINED.—For
purposes of paragraph (1), the term ‘applicable per-
centage’ means 50 percent reduced (but not below
20 percent) by 1 percentage point for each $1,000
(or fraction thereof) by which the taxpayer’s ad-
justed gross income for the taxable year exceeds
$30,000.’’
(b) EQUIVALENT OF INCREASED BENEFIT WHERE
PARENT STAYS AT HOME TO PROVIDE CHILD CARE FOR
CHILD UNDER AGE 4.—
(1) IN GENERAL.—Section 24 of such Code (re-
lating to child tax credit) is amended by redesignat-
ing subsections (e) and (f) as subsections (f) and
(g), respectively, and by inserting after subsection
(e) the following new subsection:
‘‘(f) ADDITIONAL CREDIT IF TAXPAYER HAS QUALI-
FYING CHILD UNDER AGE 4.—
‘‘(1) IN GENERAL.—If any qualifying child of
the taxpayer is a young child, the credit allowed by
subsection (a) shall be increased by the increased de-
pendent care credit equivalent amount.
‘‘(2) INCREASED
DEPENDENT
CARE
CREDIT
EQUIVALENT AMOUNT.—For purposes of paragraph
(1), the term ‘increased dependent care credit equiv-
alent amount’ means, with respect to any taxable
year beginning in a calendar year, an amount equal
to—
‘‘(A) the amount estimated by the Sec-
retary (for taxable years beginning in the pre-
ceding calendar year) as being equal to the av-
erage employment-related expenses which are
taken into account under section 21(a) by tax-
payers who have only one qualifying individual
and that qualifying individual is a young child,
multiplied by
‘‘(B) the percentage equal to the excess (if
any) of—
‘‘(i) the percentage applicable to the
taxpayer under section 21(a)(2), over
‘‘(ii) the percentage which would be
applicable to the taxpayer under section
21(a)(2) as in effect on the day before the
date of the enactment of this paragraph.
‘‘(3) YOUNG CHILD.—For purposes of this sub-
section, the term ‘young child’ means any individual
who has not attained the age of 4 as of the close of
the calendar year in which the taxable year of the
taxpayer begins.
‘‘(4) COORDINATION
WITH
DEPENDENT
CARE
CREDIT.—Credit shall be allowed under this sub-
section to a taxpayer for a taxable year only if the
taxpayer elects not to have section 21 apply for such
year.’’
(2) CONFORMING AMENDMENT.—Subparagraph
(I) of section 6213(g)(2) of such Code is amended
by striking ‘‘section 24(e)’’ and inserting ‘‘section
24(f)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 3. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES
FOR CHILD CARE ASSISTANCE.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business related credits) is amended by
adding at the end the following new section:
‘‘SEC. 45D. EMPLOYER-PROVIDED CHILD CARE CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the
employer-provided child care credit determined under this
section for the taxable year is an amount equal to 25 per-
cent of the qualified child care expenditures of the tax-
payer for such taxable year.
‘‘(b) DOLLAR LIMITATION.—The credit allowable
under subsection (a) for any taxable year shall not exceed
$150,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—
The term ‘qualified child care expenditure’ means
any amount paid or incurred—
‘‘(A) to acquire, construct, rehabilitate, or
expand property—
‘‘(i) which is to be used as part of a
qualified child care facility of the taxpayer,
‘‘(ii) with respect to which a deduction
for depreciation (or amortization in lieu of
depreciation) is allowable, and
‘‘(iii) which does not constitute part of
the principal residence (within the meaning
of section 121) of the taxpayer or any em-
ployee of the taxpayer,
‘‘(B) for the operating costs of a qualified
child care facility of the taxpayer, including
costs related to the training of employees, to
scholarship programs, and to the providing of
increased compensation to employees with high-
er levels of child care training,
‘‘(C) under a contract with a qualified
child care facility to provide child care services
to employees of the taxpayer,
‘‘(D) under a contract to provide child care
resource and referral services to employees of
the taxpayer, or
‘‘(E) for the costs of seeking accreditation
from a child care credentialing or accreditation
entity.
‘‘(2) QUALIFIED CHILD CARE FACILITY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care facility’ means a facility—
‘‘(i) the principal use of which is to
provide child care assistance, and
‘‘(ii) which meets the requirements of
all applicable laws and regulations of the
State or local government in which it is lo-
cated, including, but not limited to, the li-
censing of the facility as a child care
facility.
Clause (i) shall not apply to a facility which is
the principal residence (within the meaning of
section 121) of the operator of the facility.
‘‘(B) SPECIAL RULES WITH RESPECT TO A
TAXPAYER.—A facility shall not be treated as a
qualified child care facility with respect to a
taxpayer unless—
‘‘(i) enrollment in the facility is open
to employees of the taxpayer during the
taxable year,
‘‘(ii) the facility is not the principal
trade or business of the taxpayer unless at
least 30 percent of the enrollees of such fa-
cility are dependents of employees of the
taxpayer, and
‘‘(iii) the use of such facility (or the
eligibility to use such facility) does not dis-
criminate in favor of employees of the tax-
payer who are highly compensated employ-
ees (within the meaning of section 414(q)).
‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUC-
TION CREDIT.—
‘‘(1) IN GENERAL.—If, as of the close of any
taxable year, there is a recapture event with respect
to any qualified child care facility of the taxpayer,
then the tax of the taxpayer under this chapter for
such taxable year shall be increased by an amount
equal to the product of—
‘‘(A) the applicable recapture percentage,
and
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the qualified
child care expenditures of the taxpayer de-
scribed in subsection (c)(1)(A) with respect to
such facility had been zero.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the recapture event occurs in:
percentage is:
Years 1–3 ..................................................................
100
Year 4 ........................................................................
Year 5 ........................................................................
Year 6 ........................................................................
Year 7 ........................................................................
Year 8 ........................................................................
Years 9 and 10 ..........................................................
Years 11 and thereafter ............................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day
of the taxable year in which the qualified child
care facility is placed in service by the taxpayer.
‘‘(3) RECAPTURE EVENT DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’
means—
‘‘(A) CESSATION
OF
OPERATION.—The
cessation of the operation of the facility as a
qualified child care facility.
‘‘(B) CHANGE IN OWNERSHIP.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the disposition of a
taxpayer’s interest in a qualified child care
facility with respect to which the credit de-
scribed in subsection (a) was allowable.
‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not
apply if the person acquiring such interest
in the facility agrees in writing to assume
the recapture liability of the person dispos-
ing of such interest in effect immediately
before such disposition. In the event of
such an assumption, the person acquiring
the interest in the facility shall be treated
as the taxpayer for purposes of assessing
‘‘(e) 
SPECIAL
RULES.—For 
purposes 
of 
this
section—
‘‘(1) AGGREGATION RULES.—All persons which
are treated as a single employer under subsections
(a) and (b) of section 52 shall be treated as a single
taxpayer.
‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of
section 52 shall apply.
‘‘(3) ALLOCATION IN THE CASE OF PARTNER-
SHIPS.—In the case of partnerships, the credit shall
be allocated among partners under regulations pre-
scribed by the Secretary.
‘‘(f) NO DOUBLE BENEFIT.—
‘‘(1) REDUCTION IN BASIS.—For purposes of
this subtitle—
‘‘(A) IN GENERAL.—If a credit is deter-
mined under this section with respect to any
property by reason of expenditures described in
subsection (c)(1)(A), the basis of such property
shall be reduced by the amount of the credit so
determined.
‘‘(B) CERTAIN
DISPOSITIONS.—If during
any taxable year there is a recapture amount
determined with respect to any property the
basis of which was reduced under subparagraph
(A), the basis of such property (immediately be-
fore the event resulting in such recapture) shall
be increased by an amount equal to such recap-
ture amount. For purposes of the preceding
sentence, the term ‘recapture amount’ means
any 
increase 
in 
tax 
(or 
adjustment 
in
carrybacks or carryovers) determined under
subsection (d).
‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No
deduction or credit shall be allowed under any other
provision of this chapter with respect to the amount
of the credit determined under this section.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 38(b) of such Code is amended—
(A) by striking ‘‘plus’’ at the end of para-
graph (11),
(B) by striking the period at the end of
paragraph (12), and inserting a comma and
‘‘plus’’, and
(C) by adding at the end the following new
paragraph:
‘‘(13) the employer-provided child care credit
determined under section 45D.’’.
(2) Subsection (d) of section 39 of such Code
(relating to carryback and carryforward of unused
credits) is amended by adding at the end the follow-
ing new paragraph:
‘‘(9) NO CARRYBACK OF SECTION 45D CREDIT
BEFORE JANUARY 1, 1999.—No portion of the un-
used business credit for any taxable year which is
attributable to the credit determined under section
45D may be carried back to a taxable year begin-
ning before January 1, 1999.’’.
(3) The table of sections for subpart D of part
IV of subchapter A of chapter 1 of such Code is
amended by adding at the end the following new
item:
‘‘Sec. 45D. Employer-provided child care credit.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 4. GRANTS TO STATES TO IMPROVE THE QUALITY AND
SAFETY OF CHILD CARE, TO PROVIDE CHILD
CARE FOR LOW-INCOME WORKING FAMILIES,
AND FOR BEFORE AND AFTER SCHOOL CHILD
CARE.
Part A of title IV of the Social Security Act (42
U.S.C. 601–619) is amended by inserting after section
418 the following:
‘‘SEC. 418A. GRANTS TO STATES TO IMPROVE THE QUALITY
AND SAFETY OF CHILD CARE, TO PROVIDE
CHILD CARE FOR LOW-INCOME WORKING
FAMILIES, AND FOR BEFORE AND AFTER
SCHOOL CHILD CARE.
‘‘(a) CHILD CARE QUALITY AND SAFETY IMPROVE-
MENT GRANTS.—
‘‘(1) ENTITLEMENT.—Each State shall be enti-
tled to receive from the Secretary a grant in an
amount determined under paragraph (2).
‘‘(2) AMOUNT OF GRANT.—
‘‘(A) ALLOTMENTS
TO
STATES.—After
making the reservation described in paragraph
(3) of this subsection, the total amount avail-
able for grants under this subsection for a fiscal
year shall be allotted among the States in the
manner provided for in section 418(a)(2)(B).
‘‘(B) FEDERAL MATCHING OF STATE EX-
PENDITURES EXCEEDING HISTORICAL EXPEND-
ITURES.—The Secretary shall make payments
under this subsection in the manner provided
for in section 418(a)(2)(C) as if ‘400 percent’
were substituted for ‘the Federal medical assist-
ance percentage for the State for the fiscal year
(as defined in section 1905(b), as such section
was in effect on September 30, 1995)’.
‘‘(C) 
REDISTRIBUTION.—Section
418(a)(2)(D) shall apply to amounts allotted
under subparagraph (A) of this paragraph.
‘‘(3) INDIAN TRIBES.—The Secretary shall re-
serve not less than 1 percent, and not more than 2
percent, of the aggregate amount appropriated to
carry out this subsection for each fiscal year for pay-
ments to Indian tribes and tribal organizations.
‘‘(4) USE OF FUNDS.—Amounts received by a
State under this subsection shall be used only to im-
prove the quality and safety of child care through
such means as—
‘‘(A) reducing staff-to-child ratios;
‘‘(B) improving and expanding child care
training (including training in first aid and
cardiopulmonary resuscitation);
‘‘(C) improving enforcement of State
health and safety requirements (including in-
creasing unannounced inspections of child care
settings);
‘‘(D) helping providers meet accreditation
and licensing requirements;
‘‘(E) promoting programs to improve early
learning for children who have not attained 6
years of age;
‘‘(F) providing increased payment rates for
child care services for infants or children with
special medical needs;
‘‘(G) connecting child care providers to
centers for education and health care profes-
sionals;
‘‘(H) conducting background checks on
child care providers;
‘‘(I) improving the compensation of child
care providers; and
‘‘(J) expanding activities to educate par-
ents on the availability and quality of child
care, including the development and operation
of resource and referral systems.
‘‘(5) APPROPRIATION.—Out of any money in
the Treasury of the United States not otherwise ap-
propriated, there are appropriated for grants under
this subsection—
‘‘(A) $250,000,000 for fiscal year 1999;
‘‘(B) $500,000,000 for each of fiscal years
2000 and 2001;
‘‘(C) $750,000,000 for fiscal year 2002;
and
‘‘(D) $1,000,000,000 for fiscal year 2003.