White House Middle Class Initiatives Sounds Good on the Surface but Scary Underneath

For those of us who don't have access to details polls I think Obama just gave us a peek at the latest ones. He, along with Democrats in general, must be losing support among the middle class and college students based on his new found cause - supporting the middle class. We haven't heard much about the Middle Class Task Force until now. Isn't it convenient that it is just about the time they are realizing their support is plummeting?

The Middle Class Task Force announced several initiatives for middle class families, details can be found on their blog. These include increasing the child care tax credit, increased funding for elder care, capping payments for student loans to 10% of usable income, and creating a system of automatic workplace IRAs and even adding tax credits to encourage savings.

On the surface it sounds good but let's look a little deeper.

Increasing the Child Care Credit - For some anyway

The committee has proposed increasing the credit rate from 20% to 35% of child care expenses for families under $85,000 a year. Families making up to $115,000 a year would also see unspecified increases.

For me this will have no affect because apparently we're "Rich," according to the government. I'm an IT Manager and my wife is a dog groomer. Sounds like Middle Class to me but apparently not for the Obama administration.

But looking beyond myself I think the real question is: why should the taxpayers subsidize anybody's child care? Has child care now somehow become a right? Yes it is expensive to have children, especially if both parents work, but isn't that what responsible people think of before they have them?

Why the income limits? I know that it may be difficult for some to swallow the fact that we would subsidize child care for the "wealthy," but I don't think we should be subsidizing it for anybody.

Student Loans - The Good, The Bad, and the Ugly

Ok, well I'm having trouble seeing the good in it. At first I was very excited at the idea of it because I was one of those unfortunate students who had to finance just about all of my education. After an undergraduate degree from a public school followed by a MBA from a private school I have student loan debt that rivals many mortgages. Unfortunately it doesn't look like the new plan will change my payments.

So who will it help? This is where it gets interesting. It looks like the main beneficiaries would be the banks and students who did not complete their degrees. Is that really who we want to subsidize and/or encourage?

Students who don't finish their degrees are in a tough spot. They incurred some of the expense of obtaining an education but probably don't see any of the benefits of completing an education such as increased income. This is a tough spot so we really shouldn't make it easier for people to drop out and put themselves in this situation.

It appears that they calculated things just right to make sure that the banks are covered, here's how:

According to the Middle Class Task Force Fact Sheet a single person who earns $30,000 a year with $20,000 in loans would pay $115 a month instead of $228 a month.

Well first of all the higher payment is an exaggeration to say the least. Using the Income Based Repayment Calculator, which uses current information, that person would pay $170 a month not $228. The $228 would be the standard repayment without any changes. So they are really double dipping, getting some benefit from the new plan but most of it is just from existing programs.

Ok back to how they are taking care of the banks. If you calculate the first month of interest on a $20,000 loan at 6.8% interest you will get $113.33 which means a whopping $1.67 in balance reduction and it means that the bank always gets their interest payment from the start. If that payment level stays constant it would take just over 62 YEARS to pay of those student loans. That's more than enough time to pay two mortgages!

Talk about the gift that keeps on giving! But is that really helping students? Is it really a good idea to saddle our graduates with a lifetime of debt? But then again how many would really think that through? How many would be happy now? How many might think about starting to support Obama again?

More Requirements For Businesses

Under the new initiatives employers will be required to automatically enroll their workers in an IRA unless the employee opts out. While it's not stated it's implied that a 401k is an acceptable substitute and they are encouraging that as well.

On the surface I certainly agree that saving for retirement is important, but there are a couple of problems with this plan. My first objection is the basic principal that the government should not be interfering with employers like this. But the real problem is the devastating effect it will have on the very people that they are trying to help.

Think back to the first day on your job. Think about all the forms you had to fill out. Think about all the questions you had. Think about all the questions that you didn't get answered. Now add an IRA enrollment form to that pile. Do you really think you are going to make good investment decisions in that situation? Sure you can change them later, if you remember. But those "automatic" choices may turn out to be very bad ones. Don't forget that the people they are trying to sign up are the 40% that currently don't have any type of retirement accounts. In other words the first time they will look at any of this will be on their first day of work.

The Rest Is Just More Government Spending

The rest of the initiatives include increased spending for elder care and matching credits for retirement accounts. Naturally there are income limits. Apparently they seem to think that the taxpayers want to get in the business of matching contributions just like the big employers. I don't know about the rest of you but I sure don't.

If you ask me this is just another example of the democrats carefully selecting who they are going to "help" based on whose vote they need. Don't fall for it America, just say no!

Sources

Middle Class Task Force Blog
Remarks by the President and Vice President at Middle Class Task Force Meeting. January 25, 2010
Fact Sheet: Supporting Middle Class Families.