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Obama proposes economic help for middle class

Tuesday, January 26, 2010; A04

1.

Expanding the

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.

3.

Expanding assistance

for elder care.

The administration would increase funding for counseling, training, transportation and temporary respite services for families caring for an older parent or other relative. The administration says the extra assistance would reach nearly 200,000 people providing elder care and allow an additional 3 million hours of respite care.

Analysis: Elder care is a major concern of baby boomers and the generation just behind them. The health-care legislation in Congress attempted to address this with a new government-run long-term-care insurance program. Monday's proposal is likely to be far more limited in its reach.

4.

Making

retirement account

enrollment automatic.

Employers that do not offer retirement plans would be required to set up individual retirement accounts for workers via automatic paycheck deduction, unless workers chose not to participate.

Analysis: This idea has been touted for several years by behavioral economists and promoters of "benevolent paternalism," such as Obama administration official Cass Sunstein. The thinking is that people would be more likely to save for retirement if it were the default option, instead of a step they must take on their own.

5.

Simplifying the

savers tax credit.

Families earning as much as $55,500 now can receive a tax credit for retirement savings, up to $1,000 for the lowest-income taxpayers. Under the proposal, the maximum credit would be reduced to $500 a year for anyone who saves at least $1,000. But the threshold for receiving the maximum would expand to $65,000 in family income, with smaller credits up to $85,000. And the credit would be made refundable, meaning that it would be available to those who pay no federal income taxes.

Analysis: Even with the stock market's rebound last year, many retirement accounts are far from recovering what they lost in the financial collapse. This proposal would benefit many lower- and middle-income earners, but the size of the boost would be limited.

-- Alec MacGillis

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