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Obama proposes economic help for middle class

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Tuesday, January 26, 2010

1.

Expanding the

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child-care tax credit.

The child-care tax credit now starts at 35 percent of child-care costs for the poorest families and drops to 20 percent of costs for families earning $43,000 or more. The proposal calls for a credit of 35 percent of child-care costs for all families earning as much as $85,000, with the share declining above that income level. The White House estimates that this would reduce taxes by $900 for a typical family with $80,000 in income.

Analysis: This expansion would help many families closer to the $85,000 threshold but would not help the many families lower on the income ladder who pay no federal income taxes, because the credit is nonrefundable. The White House is seeking to help lower-income families by expanding federally subsidized child-care programs by more than 200,000 slots.

2.

Limiting student

loan payments.

Payments on federal student loans are capped at 15 percent of income above a basic living allowance. The proposal would lower that to 10 percent. Under a typical repayment plan, the monthly payment for a graduate earning $30,000 who owes $20,000 in loans would drop from $228 to $115. The proposal would also lower the number of years for which graduates must make payments before being forgiven their balance, from 25 years to 20.

Analysis: The administration is seeking a broader overhaul of student loans, scaling back the role of federally subsidized private lenders and using the savings to expand federal financial aid programs. This is a far more modest step, but it would defer payments for many graduates and stimulate the economy by giving them more money to spend in other ways.


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