President Obama recently announced new proposals designed to help middle-class families. From child care to elder care, IRAs and tax credits, Urban Institute research pinpoints families' most pressing needs and provides the context needed to evaluate the administration's new initiatives.
Increasing the child and dependent care tax credit
Credits and Exemptions for Children
Elaine Maag
The Earned Income Tax Credit, Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the dependent exemption all provide benefits to families with children. In 2009, a single mom (or dad) with two children can receive benefits ranging from $0 to about $7,500 - depending on her income, age of the children, and where the children live. While this assistance is extremely important to many low-income families, they must navigate a bewildering set of rules to take full advantage of the credits. Due to the piecewise implementation of these credits and exemptions, total benefits bounce around erratically as income grows.
The Disappearing Child Care Credit
Elaine Maag
There are two primary tax benefits parents use to offset childcare costs. The Child and Dependent Care Tax Credit (CDCTC) provides a tax credit of up to 35 percent on up to $3,000 of expenses per child ($6,000 total), for a maximum credit of $1,050 per child ($2100 total). Or, employees can arrange with their employers to exclude up to $5,000 from their salary to pay for child care. While benefits from the CDCTC swamped those available from the exclusion in 2006; benefits from the child care credit are projected to decline dramatically, largely due to the increase in the number of taxpayers subject to the Alternative Minimum Tax (AMT) beginning in 2008.
Reforming the Child and Dependent Care Tax Credit
Jeff Rohaly
The child and dependent care tax credit (CDCTC) is a nonrefundable tax credit designed to help offset the expenses of providing care for children under the age of 13 or disabled dependents as long as a parent or caretaker is working or searching for work. In theory, a low-income family can qualify for a maximum $2,100 credit. The credit is not refundable, however, and families with low incomes generally owe little or no income tax. Thus, the theoretical maximum rarely applies in practice. This paper examines the revenue and distributional implications of making the CDCTC fully refundable.
Expanding the Child and Dependent Care Tax Credit (CDCTC)
Tax Policy Center
Options for expanding the CDCTC including the Administration's State of the Union 2010 proposal. Tables show the revenue and distributional effect, as well as the impact on the number of recipients and the average credit they receive.
Growth and Decline in Tax Credits For Families With Children
Elizabeth Bell, C. Eugene Steuerle
Under current law, there are three major tax credits that affect families with children: the earned income tax credit, the child and dependent care tax credit (CDCTC), and the child tax credit (CTC).
Capping student federal loan payments
Promoting Economic Mobility By Increasing Postsecondary Education
Ron Haskins, Harry Holzer, Robert I. Lerman
A college education strongly affects whether or not children from poor or low-income families move up the economic ladder when they become adults. But they are less likely to enroll in either two- or four-year colleges, and less likely to complete a degree when they do, relative to those from middle- and upper-income families — even after accounting for differences in academic preparation. We review current federal efforts to help low-income students attend college, and recommend new policies that would improve their academic preparation, provide more effective guidance on selecting and paying for college, and improve retention and graduation rates.
Requiring auto-enrollment IRAs from employers that do not offer retirement plans
Will Automatic Enrollment Reduce Employer Contributions to 401(k) Plans?
Mauricio Soto, Barbara Butrica
Many employers match employee contributions to 401(k) plans. However, the employer cost of continuing this practice may increase rapidly as trends towards automatic enrollment boost employee participation. This paper examines the relationship between employer matching behavior and automatic enrollment. Using a sample of large 401(k) plans, we find that match rates are about 7 percentage points lower among firms with automatic enrollment than among those without automatic enrollment, even controlling for firm characteristics. So while autoenrollment increases the number of workers participating in private pensions, our findings suggest it might also reduce the level of pension contributions.
Does Autoenrollment Affect Employer Contributions?
Barbara Butrica, Mauricio Soto
Automatic enrollment, a 401(k) feature that enrolls employees as soon as they become eligible, is growing in popularity because it has been shown to significantly increase pension participation rates. However, higher participation rates increase costs for employers that match employee contributions. This brief evaluates the extent to which firms adjust their 401(k) contributions to offset the higher costs associated with automatic enrollment. We find that employer match rates are 7 percentage points lower among firms with autoenrollment than among those without it, suggesting that automatic enrollment may not promote retirement savings as effectively as some advocates have claimed.
Five Questions for retirement policy expert Richard W. Johnson
Richard W. Johnson
The aging of America will trigger sweeping changes for all Americans, not only retirees. The demographic shift will change the way we work and retire, put more demands on health care and long-term care, and swell entitlement programs, squeezing out funding for other government programs. But the shift can also provide the country with a surge of volunteers and get the most from often-undervalued older workers. Principal research associate Richard Johnson answers five questions about how retirement is changing, how workers can prepare, and how policymakers can improve retirement security.
Automatic Enrollment in IRAs: Costs and Benefits
Benjamin H. Harris, Rachel M. Johnson
To encourage better retirement saving, President Obama recently proposed policies that would require firms without retirement savings plans to automatically enroll their workers in IRAs. In addition, the president proposed an expansion of the Saver's Credit to be fully refundable and available to middle-income taxpayers. This report estimates the revenue costs and distributional effects of the president's proposals.
Are Low-Wage Workers Destined for Low Income at Retirement?
Barbara Butrica, Eric Toder
Low-wage workers find it difficult to save for retirement. Without savings, they will have to rely on Social Security and pensions. Yet these income sources are based on earnings, which means that low-wage workers will have lower Social Security and pension benefits than higher-wage workers. This brief assesses whether boomers with low earnings between ages 22 and 62 are destined for low income at age 67. We find that nearly two-thirds of this group will end up with low income at retirement, but more than one-third will manage to defy the odds and escape being among the lowest-income older Americans.
Storm Clouds Ahead for 401(k) Plans?
Pamela Perun
Designed to promote retirement saving, the Pension Protection Act of 2006 clarified auto-enrollment, auto-contribution, and auto-investment rules in employer 401(k) plans. Early evidence suggests that the legislation boosted these plan features and increased employee participation in 401(k) plans. It is too soon to gauge the act's ultimate success, however, because it hinges on the number of new participants that will eventually amass substantial account balances. Adding to the uncertainty, the recent LaRue Supreme Court decision, which highlights the legal liability that employers face as plan fiduciaries, could undermine future retirement security by making some employers reluctant to sponsor plans.
Why Not a Super Simple Saving Plan for the United States?
Pamela Perun, C. Eugene Steuerle
Despite decades of significant tax subsidies for pensions and retirement accounts, most Americans retire with little or no pension saving. This paper suggests that it is possible to create a "Super Simple" saving plan that would provide a basic, low-cost, easily administrable plan with the potential to increase significantly the retirement assets available to moderate- and middle-income individuals. This plan follows the lead of a new system about to be implemented in the United Kingdom, which features automatic contribution for employees who do not opt out, a significant government match, and simplification of existing rules amongst other elements.
Boomers at the Bottom: How Will Low Income Boomers Cope with Retirement
Barbara Butrica, Eric Toder, Desmond Toohey
This study uses the Urban Institute's DYNASIM model to project wealth and income at retirement for low-income boomers. The findings suggest that most with low lifetime earnings will also have low incomes at older ages unless they either continue working or move in with others who help support them financially. Saving more, working more consistently over their lifetime, and delaying retirement is projected to improve outcomes for low-earning boomers, but none of these actions will increase retirement living standards dramatically.
Employer-Sponsored Pensions: A Primer
Brendan Cushing-Daniels, Richard W. Johnson
The shifting pension landscape raises questions about the financial security of future retirees. About one-half of private-sector workers are not covered by employer-sponsored pension plans on their current job. Many private-sector employers have replaced traditional pensions with 401(k)-type plans, which protect benefits for workers who change jobs frequently but expose participants to investment risks. This primer describes pensions, workers with coverage, and related policy issues.
Expanding the savers’ tax credit and making it refundable
Automatic Enrollment in IRAs: Costs and Benefits
Benjamin H. Harris, Rachel M. Johnson
To encourage better retirement saving, President Obama recently proposed policies that would require firms without retirement savings plans to automatically enroll their workers in IRAs. In addition, the president proposed an expansion of the Saver's Credit to be fully refundable and available to middle-income taxpayers. This report estimates the revenue costs and distributional effects of the president's proposals.
Taxation of Saving for Retirement: Current Rules and Alternative Reform Approaches
Eric Toder
Most advanced countries exempt returns to retirement saving from income tax, but private saving rates are falling and many people are saving too little for retirement. There is a trade-off between the goals of promoting wide participation in retirement saving plans and allowing more choice to employees. In the United States, purely employer funded plans have been replaced by plans that rely more on voluntary employee contributions, while private saving has declined. Two approaches that may promote more retirement saving are refundable tax credits for low-income workers and rules that encourage or require automatic enrollment in retirement saving plans.
Expanding support for families balancing work with elder care
The Future of Long-Term Care: What Is Its Place in the Health Reform Debate?
Howard Gleckman
More than 10 million Americans require long-term care supports and services. Yet the system for delivering and paying for this assistance is deeply flawed. While most of the frail elderly and those with disabilities prefer assistance at home, many must live in nursing homes to receive Medicaid benefits, care coordination for those with multiple chronic illnesses is poor, and the system for financing care impoverishes many middle-income families. The national health reform debate allows policymakers to reconsider long-term care as well. This paper assesses proposals to restructure the delivery and financing of long-term care services.
What about long-term care?
Howard Gleckman
More than 250 million Americans—more than 80 percent of us— have health coverage, usually through employers or Medicare, Howard Gleckman points out in a USA Today commentary. By contrast, just 7 million have long-term care insurance. That, it seems, is the real crisis of the uninsured.
The Strains and Drains of Long-Term Care
Richard W. Johnson
As the nation grows older, it's time to find a better way to care for those who need help as they age. The financial, emotional, and physical costs of providing long-term care often overwhelm families. Unpaid family members supply most of it, struggling to balance these duties with work and other responsibilities. A year's stay in a nursing home averaged $78,000 in 2007, and public assistance is not generally available until residents have exhausted almost all of their financial resources. Policymakers should encourage Americans to prepare for their own long-term care needs or create a larger role for government financing.
The Burden of Caring for Frail Parents: Statement Before the Joint Economic Committee, United States Congress
Richard W. Johnson
Working without pay and often putting in long hours over many months or years, family caregivers improve the lives of many frail older Americans. The help they provide saves the public billions of dollars a year in nursing home and paid home care costs. Yet care responsibilities often create serious burdens for caregivers, especially those balancing elder care duties with paid employment and childcare. More public funds are needed to support their work.
Meeting the Long-Term Care Needs of the Baby Boomers: How Changing Families Will Affect Paid Helpers and Institutions
Richard W. Johnson, Desmond Toohey, Joshua M. Wiener
The demand for long-term care services will surge in coming decades when the baby boomers reach their 80s. Declining family sizes, increasing childlessness, and rising divorce rates will limit the number of family caregivers. Rising female employment rates may further reduce the availability of family care, increasing the future need for paid home care. This study projects to 2040 the number of people ages 65 and older with disabilities and their use of long-term care services. The simulations show that even under the most optimistic scenario long-term care burdens on families and institutions will increase substantially.
In-Home Care for Frail Childless Adults: Getting By With a Little Help From Their Friends?
Richard W. Johnson
Adult children are a crucial source of care for frail older Americans, especially for widowed and divorced people who cannot turn to spouses for help. Informal care options are limited for frail unmarried adults without children, however. Some may turn to friends, charitable organizations, or other family members for help. Others may purchase home care from paid providers. But some frail childless adults may receive inadequate care in the community or be pushed into nursing homes. Although most people with long-term care needs have children who can provide help, declining fertility rates will increase the number of frail childless Americans in coming decades. This article examines the receipt, amount, and source of care for frail older adults without children and compares their care to that received by older adults with children.
A Profile of Frail Older Americans and Their Caregivers
Richard W. Johnson, Joshua M. Wiener
Frail older adults are one of the most vulnerable groups in the nation. Disproportionately female, widowed, and in their 80s and 90s, most older people with disabilities living outside of nursing homes have little education and limited financial resources. Given the scarcity of public financing for home-based care, about three-quarters of frail older people receiving assistance rely exclusively on unpaid caregivers. Yet providing help to these older Americans can be a substantial burden on spouses, children, and friends. As a result, some frail older adults do not receive the help they need. As the population ages, the demands on government and families will only intensify and put more older people at risk.
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