The Road Ahead for Middle Class Families

Middle-class families are squeezed as never before. Here, ten ideas to help us all get back on track.

By Barbara Kantrowitz from Reader's Digest | November 2011

IDEA 6
Forgive more homeowners

More than 28 percent of American homeowners with mortgages owed more than their houses were worth early this year, according to the real estate website Zillow. Former New York governor Eliot Spitzer calls this “a continuing and incendiary crisis” that is “dragging down our economy, creating a downward spiral of foreclosures and abandonment.” Writing for Slate, Spitzer says the administration and the Federal Reserve should insist that banks that have benefited from taxpayer subsidies reduce any mortgage exceeding the value of the house. Homeowners would then have more money to spend, which would boost the economy, Spitzer says. This would also mean that homeowners might be able to move if they wanted to, and the housing market could stabilize at a new level. The banks could benefit long-term by sharing in the profits if owners sell their houses for more than the reduced value. But in the short term, saving underwater homeowners could help the banks because it would mean fewer foreclosures, fewer abandoned houses and blighted neighborhoods, and fewer houses on the market.

WILL HELP:
Homeowners who bought houses at inflated prices during the boom years.

WON’T HELP:
Homeowners whose homes aren’t underwater but are still struggling to pay their mortgages.

CHALLENGES:
The housing crisis is huge and keeps getting worse. No single fix will solve it.

IDEA 7
Give a bigger tax break for child care
Millions of two-career families and single parents rely on child care to maintain a middle-class lifestyle, but the price tag is high. In the past decade, the cost of child care has grown much faster than inflation and twice as fast as the median household income. The annual cost of full-time care in a day-care center ranges from about $4,500 in Mississippi to nearly $16,000 in Massachusetts. Home-based care is less expensive but still a strain on many family budgets. And the strain doesn’t end when children enter school. Before- and after-school care for older children generally costs more than $4,000 a year.

“The cost of child care is largely borne by parents,” says a recent report from the National Association of Child Care Resource & Referral Agencies. “Unlike the cost of higher education, there is no system of public financing to make child care more affordable.” Under current rules, families with incomes below $15,000 can get a 35 percent tax credit, which phases down to 20 percent for families with incomes above $43,000. The White House Task Force on the Middle Class proposes that all families with incomes up to $85,000 get a 35 percent tax credit, which would help many more families. The task force estimates that the maximum credit for a family making $80,000 with two children would increase from $1,200 to $2,100. Under the proposal, most families earning up to $115,000 would also see some increase in their child-care tax credit.

WILL HELP:
Families with younger children who need two incomes, as well as single-parent households.

WON’T HELP:
Families in communities where child-care options are limited.

CHALLENGES:
A tax break is nice, but there simply isn’t enough good, affordable child care out there. We need to create more of it.

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