JEC Releases Describe Middle Class Opportunity Act
JEC Releases Describe Middle Class Opportunity Act
- Institutional AuthorsJoint Economic Committee
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2007-4262
- Tax Analysts Electronic Citation2007 TNT 34-191
JOINT ECONOMIC COMMITTEE
SENATOR CHARLES E. SCHUMER (D-NY) -- CHAIRMAN
FACT SHEET
FEBRUARY 2007
INVESTING IN RAISING CHILDREN
The rising costs of childcare, healthcare, and education, coupled with stagnating wages, have made raising a child a financial high wire act for many American families. Unfortunately, much of the Bush tax cuts were designed to provide benefits to the people who don't need them, while middle-class families struggle to manage the expenses of raising a family -- expenses which only increase with each new child. Targeted tax relief to middle-class families will help them to mange the crunch of balancing work and family, achieve their aspirations, and contribute to America's economic growth.
Each New Child Costs the Typical Middle Class Family
Over $10,00 a Year
Estimated Annual Expenditures on a Child by Parents in
Households Earning Between $43,200 and $72,600 in
Pre-Tax Income, 2005
Source: United States Department of Agriculture
Families Are Sacrificing More to Have Children. Having a child today can be a steep financial challenge for new parents. A family's first child adds over $12,000 per year of expenses to a middle-income family's budget, and each additional child typically adds an average of about $10,000 per year of expenses.1 For the typical American family, the annual expense of raising a child represents nearly 20 percent of their pretax income,nearly twice that amount for families with two children under age 5.2
More Young Adults are Waiting Longer to Have Children. The average age at which a woman has her first child has increased to 25 from 21 in 1970. Part of the reason for the increase has to do with rising educational levels and broader career opportunities for women, but the rising costs of raising a family also contribute to this trend.3
It Often Takes Two Incomes to Raise a Family. More mothers are working now than ever before: Seventy-one percent of women with children under age 18 and 62 percent of women with children under age 6 were in the labor force in 2004, compared with 47 and 39 percent, respectively, in 1975.4 Moreover, in an increasing number of families, women supply the majority of family income. In 2003, one-third of married women earned more than half of their family's income, compared with less than one-quarter of married women in 1987.5
Child Care Can Pose a Huge Financial Burden on Families. Full-time child care costs average about $7,300 per year in the United States,6 almost 20 percent of the median income of families with young children.7 In fact, having children doubles the chance that a married couple will file for bankruptcy and is the best predictor of financial difficulties for single women.8 On average, child care consumes about 15 percent of a working mother's income.9
Millions of Americans Are Struggling to Manage the Financial Crunch in Balancing Work and Family. More than three-quarters of working parents who do not take unpaid leave for which they are eligible through the Family and Medical Leave Act report that they are unable to afford to take unpaid leave.10 And more than one-third of people who took leave through the Family and Medical Leave Act reported that they had to cut their leave short because of financial considerations.11
_____________________________________________________________________
Policy Proposals
Double the Child Tax Credit in the First Year of a Child's Life. Since 1997, many families with kids have received some welcome tax relief from the Child Tax Credit. Doubling the existing child tax credit from $1,000 to $2,000 in the first year of a child's life can help parents defray the steep expenses of a new baby and alleviate financial anxiety felt by new parents.
Expand the Dependent Care Tax Credit. Under current law, working parents can claim the Dependent Care Tax Credit (DCTC) to offset a portion of their childcare expenses. The credit equals 35 percent of qualified childcare expenses for lower-income families and is reduced for families with higher income. But families earning $43,000 or more get a credit of only 20 percent of their expenses. As a consequence, the maximum credit for most middle-class families with two or more children is only $1,200. Increasing the DCTC to a full 35 percent of qualified childcare expenses for families earning up to $75,000 can help the vast majority of families in the middle-income range who are struggling with high child care and education costs by increasing their benefit to $2,100.
FOOTNOTES
1 U.S. Department of Agriculture, Center for Nutrition Policy and Promotion. Expenditures on Children by Families, 2005. Miscellaneous Publication No. 1528-2005, 2006, Table ES1, available at http://www.cnpp.usda.gov/Publications/CRC/crc2005.pdf
2 Demos Policy Brief, And Baby Makes Broke: Raising a Family is a Young Adult Issue, Winter 2007.
3Ibid.
4 U.S. Department of Labor, Bureau of Labor Statistics, "Women in the Labor Force: A Databook,:" May 2005, Table 7, available at http://www.bls.gov/cps/wlf-table7-2005.pdf
5 U.S. Department of Labor, Bureau of Labor Statistics, "Women in the Labor Force: A Databook,:" May 2005, Table 25, available at http://www.bls.gov/cps/wlf-table25-2005.pdf
6 Runzheimer International, "How Much Will Child Care Cost You?," April 6, 2006, available at http://runzheimer.com/web/all/news.2006.04.06.aspx
7 Median family income for families with children under age 6 in 2005 was $50,371. U.S. Census Bureau, Table FINC-03, "Presence of Related Children Under 18 Years Old -- All Families by Total Money Income in 2005, Type of Family, Work Experience in 2005, Race and Hispanic Origin of Reference Person, available at http://pubdb3.census.gov/macro/032006/faminc/new03_001.htm
8 Elizabeth Warren and Amelia Warren Tyagi, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, New York: Basic Books, 2003, p.6.
9 JEC Democrats calculations based on U.S. Census Bureau, "Who's Minding the Kids? Child Care Arrangements: Winter 2002" Detailed Tables (PPL-177), PPL Table 6.
10 Department of Labor, Balancing the Needs of Families and Employers, Table 2.17.
11 Department of Labor, Balancing the Needs of Families and Employers, Table 4.8.
END OF FOOTNOTES
* * * * *
INVESTING IN A COLLEGE EDUCATION
Parents today know that their children will need a college education to succeed in our global economy, but they are having a harder time saving for college as tuition skyrockets. Despite the importance of a college education to an individual's future success and the competitiveness of the entire economy, steep tuition increases have made college an intimidating financial hurdle for middle class families. America's parents need support to be able to provide their children with the opportunities and access to education that they had. Only with this support will today's young people achieve prosperity in a changing global economy.
Rising Costs Of College
Increases in Tuition, Fees and Textbooks Far
Exceed Inflation
Source: US Bureau of Labor Statistics
College is Key for Opportunity in 21st Century Economy. Over the course of their lifetime, college graduates will earn $1 million more than high school graduates.1 College graduates are more likely to have high-paying jobs that offer employer- sponsored health care and retirement benefits, which mitigates economic risk in the workforce.
The Cost of College Keeps Going Up. College tuition has nearly doubled in the past ten years at 2-year, 4-year, public and private institutions. In 1986-87 average tuition, fees, room and board at a 4-year public institutions was $7,528 (adjusted to 2006 dollars) while in 2006-2007 those costs were $12,796. For private 4- year institutions the increase was from $18,312 in 1986-87 (adjusted to 2006 dollars) to $30,367 in 2006-07.2
Students and their Families Are Racking Up Student Loan Debt. As tuition costs continue to swell, students are taking on more and more debt to pay for their degrees. In 2004, two-thirds of all four-year college graduates left school with student debt. The average student borrower now leaves college saddled with nearly $17,000 in debt.3
Even Families that Do Save For College, Can't Save Enough. The median amount saved for college, for those families that do save, is $10,000. The median amount that they will have saved by the time their oldest child will go to college is $32,000, only enough to pay for one year at a private university or two at a public university.4
On Top of Tuition, Textbooks Create a Burden On College Students and Their Families. Students spend an average of $900 a year on textbooks. Textbook prices have increased at four times the rate of inflation since 1994 and continue to rise.5
_____________________________________________________________________
Policy Proposal
Consolidate College Tuition Tax Provisions into
One Super-Sized College Credit
Also available to parents are two college-related tax credits -- the Hope Scholarship and the Lifetime Learning credit -- that have rather confusing rules and restrictive eligibility requirements. For example, the Hope Scholarship credit amounts to 100 percent of the first $1,100 of a college student's annual tuition and fees plus 50 percent of the next $1,100. Therefore, the maximum Hope credit is $1,650 per qualifying student per year. However, the Hope credit can be claimed for only two tax years for any one student, after which it becomes unavailable. The Lifetime Learning is mainly intended to help defray college costs after the first two years, when the Hope credit is no longer allowed. The Lifetime credit equals 20% of tuition and fees up to $10,000, for a maximum annual credit of $2,000. Because taxpayers can only claim one of these tax breaks at a time, filers have to do their homework and compare the relative benefits and requirements, which is no easy task.
The Middle Class Opportunity Act of 2007 (S. 614) would simplify the tax code and expand access to college for millions of families by consolidating the current Hope and Lifetime Learning tax credits and the college tuition tax deduction (which expires in 2007) into one easy-to-understand tax credit. The new credit would be applicable for expenses for tuition, fees, and textbooks, apply to both undergraduate and graduate education, and can be used for up to three students in the household. The Act would cap the credit at $2,500 per student (approximately half the national average annual tuition rate for four-year public college) and start to phase out at income levels of $70,000 (single) and $140,000 (married). The credit would reach zero when family income exceeds $90,000 (single) and $180,000 (married) in order to target it toward the families that need the most help.
FOOTNOTES
1 U.S. Census Bureau, "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings," Current Population Reports, P23-210, by Jennifer Cheeseman Day and Eric C. Newburger, available via a link at www.census.gov/population/www/socdemo/educ-attn.html.
2 The College Board, "Trends in College Pricing, 2006," available at http://www.collegeboard.com/prod_downloads/press/cost06/trends_ college_pricing_06.pdf
3 State PIRG's Higher Education Project. "Student Debt," available at http://www.uspirg.org/higher-education/student-debt
4 Investment Company Institute, "Profile Of Savings For College," Fall 2003, available at http://www.ici.org/pdf/rpt_03_college_saving.pdf
5 State PIRG's Higher Education Project, available at http://www.uspirg.org/higher-education.
END OF FOOTNOTES
* * * * *
INVESTING IN FAMILIES TAKING CARE OF ELDERLY PARENTS
With the rising costs of health care and erosion of retirement savings from traditional pensions, many American seniors find themselves in a financial bind when they need unexpected medical care and must turn to their family members for emergency assistance. Often, their children have children of their own, and are juggling the rising costs of education and health care within their own household. The financial squeeze felt by these families in the "sandwich generation" who are taking care of both their parents and their children is likely to become more prevalent in the future as the population changes.
Seniors Face High Medical Expenses
More Than 30 Percent of Middle-Income Seniors Have
Out-of-Pocket Health-Related Expenditures Exceeding
$5,000 Percent of Elderly in Middle Income Families With
Out-of-Pocket Costs Exceeding $2,000, $5,000 and $10,000
Source: Medical Expenditure Panel Survey, Agency for Healthcare Research and Quality
A Growing Number of Americans Are Entering the"Sandwich Generation." A growing number of Americans are being squeezed between the simultaneous demands of caring for their children and their aging parents. Seventy percent of people between the ages of 45 and 55 have at least one living parent.1 More than four in ten people between the ages of 45 and 55 have aging parents or inlaws as well as children under age 21.2 And as the 78 million baby boomers approach retirement and more women start having children at later ages, these numbers are expected to increase. The number of aging parents per worker between the ages of 45 and 54 is expected to double by 2035 to 1.74 parents per worker.3
Women Are More Likely Than Men To Provide Support To Aging Parents. Women represent more than two-thirds of adults providing substantial assistance to elderly parents.4 Almost half of women between the ages of 43 and 54 provided some form of support to an aging parent.5 On average women who provide care to aging parents curtail their hours of paid work by 43 percent in order to do so.6 Women belonging to the sandwich generation provide an annual average of $1,521 in financial support to elderly parents and spend 23 hours a week (1,210 hours a year) on average providing care to elderly parents.7
Baby Boomers Retiring With Debt Will Put More Pressure on the "Sandwich Generation." Skyrocketing health care costs are piling on baby boomers at a time when more and more employers are cutting their retiree medical and pension benefits. In 2006, the national personal saving rate was a negative 1 percent, the lowest level since the Great Depression. Instead of shoring up retirement savings, baby boomers are forced to spend their earnings, or borrow to cover high health care costs. From 1992 to 2004, the percentage of households 55 and older with more debt than assets grew faster than the rate of the overall population. Among households 65 and older, the average amount of credit card debt more than doubled from 1992 to 2004, to $4,907.8 These trends will impose substantial financial obligations on the "sandwich generation."
_____________________________________________________________________
Policy Proposal
Under the Middle Class Opportunity Act of 2007 (S. 614), the DCTC would be expanded to include caregiving expenses paid on behalf of a parent or other elderly relative, even if they do not qualify as a dependent under the residency requirement of current tax code. If the residency requirement is eliminated, the maximum credit available to families making $43,000 or more that are caring for two elderly parents would be $1,200 per year.
FOOTNOTES
1 AARP, In the Middle: A Report on Multicultural Boomers Coping with Family and Aging Issues, July 2001, Table 4, available at http://assets.aarp.org/rgcenter/il/in_the_middle.pdf
2 AARP, In the Middle: A Report on Multicultural Boomers Coping with Family and Aging Issues, July 2001, Figure 2, available at http://assets.aarp.org/rgcenter/il/in_the_middle.pdf
3 U.S. Census Bureau, National Population Projections, available at http://www.census.gov/population/www/projections/natsum- T3.html
4 Richard W. Johnson and Joshua M. Wiener, "A Profile of Frail Older Americans and Their Caregivers," Urban Institute, The Retirement Project Occasional Paper Number 8, February 2006 Table 5.4
5 Charles R. Pierret, "The 'sandwich generation': women caring for parents and children," Monthly Labor Review, September 2006, Table 2.
6 Richard W. Johnson and Anthony T. Lo Sasso, "Parental Care at Midlife: Balancing Work and Family Responsibilities Near Retirement," Urban Institute, The Retirement Project Brief Series, No. 9, March 2000, p. 5.
7 Charles R. Pierret, "The 'sandwich generation': women caring for parents and children," Monthly Labor Review, September 2006, Table 7, available at http://www.bls.gov/opub/mlr/2006/09/art1full.pdf
8 USA TODAY, "Retirees up against debt," January 23, 2007.
END OF FOOTNOTES
- Institutional AuthorsJoint Economic Committee
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2007-4262
- Tax Analysts Electronic Citation2007 TNT 34-191
