How Is Obama’s Tax Reform Better for the Middle Class?

Chip Somodevilla/Getty Images

Chip Somodevilla/Getty Images

With the State of the Union imminent, President Barack Obama has been making waves with his policy plans ahead of of the annual announcement; there should be very few surprises, most especially when it comes to his tax reform plan.

Robin Hood or not?

Obama outlined a plan, which is being deemed the “Robin Hood” plan, though in a few cases it’s more like the Robin Hood plan light. It includes a number of measures to “take from the rich,” making tax loopholes tighter for the wealthy or creating measures that cut deeper into big business pocket books. Specifically, it targets trust funds to “ensure the wealthiest Americans pay their fair share on inherited assets,” and large borrowing fees for big financial businesses. Unapologetically name dropping, the White House release stated that he’d bring the upper capital gains rate to 28%, “the rate under President Ronald Reagan.”

Simultaneously, Obama’s tax reform plan gives to the middle class — not the poor necessarily, though some policies will help the middle class on down, but others will be most directly benefiting a middle class demographic only.

Take the Child and Dependent Care Tax Credit (CDCTC) for example. This particular tax change really does specifically target middle class families, and it goes hand in hand toward helping parents who would be eligible for the second earner credit. He proposes increasing the CDCTC threefold to $3,000 for every child below five.

The CDCTC applies for children under 12 or dependents/children over 12 who are unable to be left unattended for valid reasons, and already has a cap of $3,000 (or $6000 for two children). However, it works as a sliding percentage. So depending on your income, the percentage of the tax credit you’re able to apply for is limited. For example, those of a certain demographic might only be able to apply for 35% of that $3,000, or $1,050, and assuming children are under the age of five, Obama’s change to the tax credit would allow an individual to qualify for the full $3,000 — thus tripling the advantage.

Of course, for those with children over five, this is less helpful, and for those who already qualify for the full capped amount, it’s a null point. But still, in combination with the $500 tax credit for those with two working heads of household — which helps families from middle class to those below the poverty line — it offers relief for those middle class families struggling to get by with both parents working and child care a necessary added expense.

One possible reason for the age limit (five years) on the tax credit is that, on average, infant and toddler daycare is often more expensive than childcare for older kids, and of course, schooling starts at around age five for many children. There are also more after school options for kids past a certain age, while infants and toddlers require care full-time. All age groups (and voting demographics) considered

Child care and working households aside, younger generations struggling to come into their own were included, as were older Americans — or the future generation of retirees at least. For college students, it would mean an extra $2,500 toward studies, plus reducing six separate tax provisions into two. The money given toward college education could be given over the course of five years, once a year, and would be part of an overall plan to increase affordability for those seeking a college education. It would also help “non-traditional students” to apply for the American Opportunity Tax Credit, and to do so for a longer period of time, even if they are enrolled only part-time.

For retirement, he plans to put forward “a retirement tax reform plan that gives 30 million additional workers the opportunity to easily save for retirement through their employer.”

He would do so by making 401(k)s more accessible to the population as a whole, and if workers didn’t have access to plans through their work, his changes would force companies with over 10 employees to auto-enroll them in IRAs. This is a particularly notable part of the plan in that it includes part-time workers. With the job market still recovering, though markedly improved, underemployment is still very much a problem, and sometimes part-time work is more readily available than consistent full-time jobs. So it becomes more likely that some people work for years without a convenient way to put money aside through employers if they’re forced to work multiple part-time jobs.

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