Obama's Middle Class Proposal, Mandated IRAs On Jan. 25, President Barack Obama and Vice President Joe Biden held a meeting of the Middle Class Task Force, where they laid out key investment plans for middle class families. Setting the stage for his first State of the Union address, Obama unveiled initiatives that propose a doubling of tax credits and the creation of workplace retirement savings vehicles. Since its creation one year ago, the Middle Class Task Force has held 11 meetings around the country and at the White House. The Task Force recommendations were the result of these meetings and aim to help middle class families afford soaring child care costs; care for their aging relatives; cope with the challenge of saving for retirement; and pay for their children's college tuition. Unfortunately, one of the proposals--requiring IRAs be established by employers--could have negative implications for the small-business community. Under the administration's proposal, the child and dependent care tax credit is expanded. This is accomplished by increasing the eligible family's tax credit rate from 20 percent to 35 percent of qualifying expenses. The value of the tax credit nearly doubles for all families making under $85,000 a year, while families earning up to $115,000 will see a more modest tax credit increase. Additionally, the administration will provide a $1.6 billion increase in child care funding, the largest one-year increase in 20 years, to help an additional 235,000 children. Obama's proposal also recommends limiting a student's federal loan payments to 10 percent of his or her income above a basic living allowance. It aims to keep the total cost of the loan repayment manageable by forgiving all remaining debt after 10 years of payment for those in public service work and 20 years for all others. The White House said the monthly payment for a single borrower earning $30,000 who owes $20,000 in loans would be $115 a month, compared to $228 a month under the standard 10-year repayment plan. The proposal also calls for a requirement on employers who do not currently offer a retirement plan to set up and enroll their employees in a direct-deposit IRA unless the employee opts out. The contributions will also be voluntary and matched by the Savers Tax Credit for eligible families. NSBA has raised concerns of the burden this will place squarely on small businesses. Please click here to view that statement. The proposal expands tax credits to match retirement savings and enacts new safeguards to protect retirement savings, as well as adds $52.5 million to a program that helps families care for aging relatives. The changes to the saver's credit would provide a government match of 50 percent of the first $1,000 of contributions by families earning up to $65,000 and provide a partial credit to families earning up to $85,000. The tax credit would be refundable under the administration's plan. Both the automated IRA enrollment and the saver's credit were included in last year’s budget proposal. Additional details of the Tax Force's final report and their full set of recommendations will be announced in the coming weeks in the wake of the president's State of the Union speech on Jan. 27 and the release of the administration's fiscal year 2011 budget request during the week of Feb. 1, 2010. |