During his campaign, President-elect Donald Trump
His proposed changes will not replace current practices; instead they will be added to existing benefits like the Child Tax Credit. While the plan gives a general outline of Trump’s ideas, it fails to provide details on qualifications for programs, maximum deductions and specifics on funding. It leaves readers with perhaps more questions than answers. However, after reading it over, one thing is clear — most of the perks benefit families with higher incomes.
“The direction of this plan is to help people who need the least help, it is ill-targeted,” said Elaine Maag, senior researcher at the Tax Policy Center.
In his plan, Trump guarantees six weeks of paid maternity leave by amending unemployment insurance. So if an employer doesn’t offer paid maternity leave, mothers will be able to claim unemployment insurance for six weeks after giving birth. Trump says the plan won’t require an increase in taxes and will be paid for by making changes to the current unemployment insurance program, namely by “
The Trump plan calls for a new tax deduction for working parents, which would let them deduct childcare expenses from their income taxes for up to four children or elderly dependents. In practice, this means a family earning $70,000 a year in the 12% tax bracket will have their taxes reduced by $840 a year if they pay $7,000 in child care expenses. Americans earning more than $250,000 a year (or $500,000 if filing jointly) won’t be eligible for the deduction.
We don’t yet know the maximum deduction of the childcare plan. For now, the campaign says it will be based on the average cost of childcare in your state, and the deduction can be applied for children up to the age of 13.
Tax deductions always sound like a good idea, but Trump’s deductions seem to only help families with a higher income. According to the Tax Policy Center, nearly 45% of Americans do not pay federal income tax because they don’t make enough money and have no taxable income – therefore, those workers won’t be able to deduct childcare expenses under Trump’s plan. In addition, if a couple is married and one person stays at home, the family still qualifies for the deduction if they spend money on childcare. Naturally, this perk will mainly benefit families with a higher income that can afford for one partner to stay at home. Most low-income families don’t have this luxury.
For those who don’t qualify for the deduction, Trump’s plan offers rebates to lower-income taxpayers through the existing Earned Income Tax Credit (EITC). A single parent or families with two working parents earning up to $31,200 a year are eligible for the maximum credit of $1,200 a year. This money will indeed put a little money in the pockets of hard-working Americans, but it will do little to ease the stress of paying weekly or monthly childcare costs.
“The tax system is not great at subsidizing ongoing expenses for families that are cash constrained,” says Maag. “If you’re a low-income family a tax credit that comes in March of 2017 for a bill that you owed in January 2016 it’s not very helpful.”
Additionally, the tax credit will not benefit low-income couples where one spouse does not work, because the credit is worth up to half of the payroll taxes paid by the lower-earning parent.
Dependent Care Savings Account
Trump’s plan also includes the introduction of a Dependent Care Savings Account (DCSA). In layman’s terms, a DCSA allows you to set aside pretax dollars to pay for expenses related to caring for a child, disabled spouse or elderly parent. For children, the money from a DCSA can be used toward childcare, after-school programs, and school tuition, even if the child hasn’t been born yet. In Trump’s plan, Americans will be able to contribute up to $2,000 a year, and the money will grow tax-free.
For families who have the money to take advantage of this program, it will be beneficial. A
“There are a lot of people living month to month and if you’re doing that you don’t have the ability to stash money way for the future,” says Maag.“It’s a nice idea to encourage people to save and help them save, but how many people it can really help is unclear.”
The final question is: Who will pay for these proposals? According to Trump’s campaign, about two-thirds of the plan will be offset by the increase in economic activity associated with his economic priorities including better trade deals and immigration reform. There were no projections for how much the changes would cost and no budgets were proposed.
Brittany is a writer at Yahoo Finance.