Middle Class Benefits Proposed by President Obama

Just before noon yesterday, President Barack Obama proposed five new middle class benefits that will be detailed in his budget next Monday:

  1. Doubling the child care credit
  2. Funding child care for 235,000 additional children
  3. Supporting elder caregivers with counseling, training, transportation, and temporary respite care
  4. Ensuring Federal Student Loan payments won’t exceed 10% of income
  5. Establishing automatic IRA’s and expanding the saver’s credit for working families

I am very concerned about the strength of our economic recovery during the second half of this year, but these tax cut won’t have much impact on the recovery until at least a year from now if Congress passed them this spring.

We won’t see official cost estimates until Monday morning, but these will undoubtedly add significantly to the deficit.

Targeting children and students through established programs makes sense to the extent that these children grow up to be more productive taxpayers. Too many elderly worked for employers without retirement plans or earned too little to set aside much for retirement, so I wouldn’t object to a well designed program there either.

However, you have to ask yourself, when do the tax cuts stop? What about the Bush tax cuts? Last May, President Obama proposed extending most of them, except for those with incomes over $250,000, and recently his White House leaked the possibility that he might propose extending all of them. That would cost approximately $3 trillion over the next 10 years according to Treasury’s Green Book. See Appendix Table B. The previous table shows that removing the Bush tax cuts for those over $250,000 would only save about 20% of that. Somebody is going to have to pay the taxes to restore fiscal balance in the face of the first ever trillion dollar deficits. Scott Hodge of the Tax Foundation shows that about one-third of individual income tax filers report zero or negative liability. Ten years ago it was only one-quarter and forty years ago it was one-fifth.

(click to enlarge)

It will be interesting to see how much deficit reduction President Obama proposes.

Table: Treas.gov

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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