State Earned Income Tax Credits are meant to help working families. Most aren’t big enough to work.

March 16, 2021
Earned income credits aren't doing much for health. (AP Photo/Brian Kersey)

Earned income credits aren't doing much for health. (AP Photo/Brian Kersey)

Annual state earned income tax credits gave people $265 on average and appeared to have no real effect on recipients' health, according to a recent study in which researchers argue that states should make benefits larger, especially because the COVID-19 pandemic has increased poverty in the U.S.

In states that have the tax credit, the low- and moderate-income people with children who qualified reported the same levels of health, distress, smoking and drinking as people in states that did not have the credit. Likewise, when a state implemented the credit during the study period, the researchers found no significant changes in these health outcomes.

The federal earned income tax program gives a tax credit — often in the form of a refund — to lower-income people with children. Prior studies have shown health benefits to the federal program, which gives larger benefits than state programs. According to a 2015 study in the American Economic Journal, federal expansions of the tax credit led to a 2% to 3% decline in the rate of low birthweight births for every $1,000 in benefits; the federal EITC has also been linked to improved maternal health, decreasing the number of days that mothers report poor mental health and increasing the probability of reporting excellent or very good health status. 

Twenty-nine states and Washington, D.C., have created their own supplementary credits.

"The earned income tax credit is designed as a poverty alleviation intervention and also a way to encourage people to work — i.e., it is contingent on employment and earned income," Rita Hamad, a co-author and an associate professor of medicine at the University of California, San Francisco, told The Academic Times. "Other studies have found positive effects of the federal EITC, which is much larger than the state benefits, so that may be a justification for further increasing the generosity of state EITCs." 

The study, published March 9 in Social Science & Medicine, took data on 10,567 people captured by the U.S. Panel Study of Income Dynamics between 1995 and 2015, comparing people who lived in places with a state-level earned income tax credit — 26 states and Washington, D.C. — with people who lived in states without such a tax credit. The researchers excluded people in three states with idiosyncratic tax credits. 

During the analyzed time period, 19 of the 27 states implemented their own earned income tax credit, giving the researchers an opportunity to look at quasi-experimental data from before and after the credit kicked in. 

According to the researchers' models, health indicators were effectively the same in states with and without the credits, and before and after implementation.

This study found there was an average annual payout of $265, with a standard deviation of $348 — in their dataset, the lowest payment was 1 cent and the highest was $2,400. 

Hamad said these findings made her particularly excited to see the effects of the nation's new monthly $300 benefit for children under 6 and $250 for children over 6. 

"The EITC is distributed just once a year, requires completing complex tax filing paperwork, and is contingent on working," she said, contrasting it with the new benefit that is monthly and doesn't require work. "Hopefully this means that it will be more effective at reducing poverty, providing stability and improving child and family health, and we'll have to make sure to do studies to ensure it's working as it should."

Hamad added, "Since many families or single parents with young children may not be able to work, especially in the current pandemic, it will be exciting to see the benefits of a no-strings-attached income boost and compare it to the EITC."

The study, "The effects of state earned income tax credits on mental health and health behaviors: A quasi-experimental study," published March 9 in Social Science & Medicine, was authored by Daniel F.Collin, Laura S.Shields-Zeeman, Akansha Batra, Justin S.White, Michelle Tong and Rita Hamad, University of California, San Francisco.

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