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

Jan. 26, 2010 — -- 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:

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.