Obama's Middle Class Tax Credits: What Do They Mean for You?

The Obama administration's new middle class initiatives will put more money into the pockets of many Americans, but will it bolster the flagging economy? Reactions to the plan, unveiled Monday as part of a forthcoming report by the administration's Task Force on the Middle Class, have largely split among ideological lines.

Here's a look at some of the administration's proposals, what analysts are saying about them and what they mean for you:

Video of President Barack Obama vowing more help for middle class.

For Working Parents: Expanding Child and Dependent Care Tax Credit for Middle Class Families

Right now, parents earning above $43,000 a year can receive credit for 20 percent of their child care expenses and may claim expenses of up to $6,000 for two or more children, resulting in a maximum total tax credit of $1,200, according to 2009 tax return guidelines from the IRS. (Those earning below $43,000 are eligible to receive a credit for a higher percentage of their expenses.)

Under the administration's proposal, parents earning up to $85,000 a year would receive credit for 35 percent of their child care expenses -- a credit level that, currently, is only available to parents earning less than $15,000 per year -- bumping up their maximum total tax credit to $2,100.

A fact sheet released by the White House said that eligible families making up to $115,000 per year would also see an increased credit.

John Irons, research and policy director of the left-leaning Economic Policy Institute, argues that expanding the credit would benefit both individual families and the economy as a whole.

"A lot of people struggling to pay their child care expenses -- this would be a nice boost for them," Irons said. "For the economy, it obviously puts more money into the economy -- it gives families more disposable income which they can roll back into the economy."

But will the extra amount that working parents might spend really make a difference?

Curtis Dubay, of the conservative Heritage Foundation, argues no.

"This is not a pro-growth tax cut," said Dubay, the senior tax policy analyst at Heritage. He and others, including libertarians, argue that only broader cuts to marginal tax rates -- rather than targeted tax credits -- will encourage more Americans to work, earn and ultimately spend more.

"The instinct to cut taxes is right but doing it through expanding the child tax credit is the wrong way to go about that," he said.

Obama Unveils Proposals to Help Middle Class Taxpayers

As with the Obama administration's expanded child care tax credit, changes proposed to the saver's tax credit would extend more benefits to higher-income groups than in the past.

The saver's tax credit helps Americans save for retirement by providing a tax credit to match their own retirement savings up to a certain amount. Under current IRS regulations, married couples filing jointly are only eligible for the full saver's credit if their adjusted gross income (AGI) is no more than $55,000. The new proposal increases this income maximum to $65,000 and also offers partial credits to families earning up to $85,000.

"Extending the AGI cutoff level from the current $55,500 to $85,000 would be particularly significant because couples with higher incomes are more likely to have the capability to make contributions to their retirement plans," Tom Ochsenschlager, the vice president of taxation for the American Institute of Certified Public Accountants, wrote in an e-mail.

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