TAX BREAKS: Obama Wants Better Deal For Working Families
(CNNMoney) — President Obama will include several tax proposals to help low- and middle-income families when he introduces his 2015 budget on Tuesday.
The White House on Monday chose to preview a few that are designed to help the working poor, to make child care and college more affordable, and to make it easier to save for retirement.
The administration said the cost of the proposals would be paid for by “closing tax loopholes” that “let high-income professionals avoid the income and payroll taxes other workers pay.”
Now, for a dose of budget reality: In most years, the House and Senate doesn’t adopt much, if anything, from presidential budget proposals. And this time could be even worse in that regard since it’s a mid-term election year and no one is expecting much to happen legislatively, least of all tax reform.
Nevertheless, Obama’s proposed changes do offer a window into the president’s thinking should lawmakers choose to make any tax changes.
Expand tax credit for the childless working poor: Obama will propose expanding the Earned Income Tax Credit for childless workers.
The EITC is an antipoverty program designed to encourage and reward work. But the credit primarily benefits workers who have children and does little to help very low-income childless workers or noncustodial parents. Their maximum credit is worth less than a tenth of what they could get if they had two or three children.
In fact, a childless person making the minimum wage and working full time would earn too much to qualify for the EITC, according to the Center on Budget and Policy Priorities, a left-leaning think tank.
The White House, which didn’t offer many details, said the credit would be made available to “younger” workers — today, childless workers under 25 are not allowed to claim it.
The change would lift about half a million more people above the poverty line, the administration said. In 2012, the EITC was estimated to lift roughly 6.5 million people out of poverty, including 3.3 million children.
Obama’s budget will also call for recent expansions of the EITC for workers with children to be made permanent.
Create Auto IRAs: Not for the first time, Obama will call on Congress to authorize automatic IRAs to make saving for retirement easier for workers without access to a 401(k).
Again, the White House didn’t offer details. But generally speaking, an auto IRA is an account that employers would set up for their workers. Employers would not be obligated to make matching contributions, but they would automatically deposit a portion of workers’ paychecks into auto IRAs.
Employees could decide how much is deducted from their paychecks and would be able to opt out of the program.
Expand the Child and Dependent Care Tax Credit: The president’s budget will propose a “significant” expansion of the child and dependent care tax credit for families with children under 5 years old.
Currently the credit is worth 35% of child care expenses up to $3,000 per child, for a maximum of $6,000 per family.
The White House estimates the expansion would result in an average tax cut of more than $600 for 1.7 million families in 2015.
Make the American Opportunity Tax Credit permanent: A college tuition tax credit worth up to $2,500 a year is set to shrink in a few years unless Congress chooses to extend it.
Obama will propose making the American Opportunity Tax Credit permanent.
Such a move would would benefit 11.5 million families and students, the White House estimates.