Income, the Earned Income Tax Credit and Infant Health Presentation to UC Center, Sacramento April 2013 Hilary Hoynes Center for Poverty Research and Department of Economics UC Davis
My research program: Health effects of non-health safety net programs We are once again debating the role of government; and in particular what the safety net should include. Often our evaluations of the costs and benefits of the safety net are limited to examinations of labor supply and poverty. My research program, joint with several co-authors, seeks to illustrate and quantify the potential for health impacts of non-health programs.
We examine the two largest non-health safety net programs for low income families the Earned Income Tax Credit and the Food Stamp Program and find that additional resources leads to economically important improvements in health Demonstrates potential for positive benefits of social safety net programs that have, to date, not been quantified Further, the work speaks to the strong SES health gradient in the U.S., that appears to unfold in early life
Here, I will summarize my work on the health impacts of the EITC. This work is joint with Doug Miller and David Simon (both of UC Davis)
What is the EITC? Refundable tax credit for low income families Must have earned income to be eligible Credit varies by number of children (small credit for childless) and earnings In tax year 2010, the credit was received by almost 27 million filers at a cost of $59.5 billion (average credit of about $2200) In 2012, maximum credit amounts are: 0 kids $475 2 kids $5,236 1 kid $3,169 3+ kids $5,891 5
By several measures, the EITC plays a central role in the U.S. safety net for families with children
Measure 1. Program Expenditures
Per Capita Real Expenditures Per capita real expenditures (2009 $) 250 225 200 175 150 125 100 75 50 25 Contractions AFDC/TANF Cash Grants Per Capita Food Stamp Total Expenditures Per Capita EITC Total Expenditures Per Capita Federal welfare reform 0 1980 1985 1990 1995 2000 2005 2010 9
Federal EITC Filers in California, 2010 Total tax returns 16.7 million EITC Returns 3.2 million Percent with EITC = 19.0% Total EITC paid $6.9 billion Average credit $2,166
Measure 2: Anti-poverty effectiveness
30 25 20 Poverty Rate, All Persons In 2011, 46 million persons or 15 percent of the population was poor 15 10 5 In California, 12.8 percent of the population was poor (2009-2011 average) 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 12
Children have the highest poverty rates 13
The new Supplemental Poverty Measure (SPM) incorporates taxes and the noncash safety net into family income. Result is lower poverty for children (in-kind safety net) and higher for elderly (out of pocket medical costs) 14
Importantly, with the SPM, we can measure the effects the safety net programs have on poverty.
Effects of the safety net on poverty, children 16
The EITC increases income and reduces poverty through two channels: The EITC represents an increase in income for the family The EITC provides incentives to enter work, and thus increase earnings which increases family income. 17
Given that the EITC leads to increases in income and reductions in poverty, we want to know whether this leads to (other) increases in family and child well-being. Here we examine the effects on infant birth weight, our main outcome is low birth weight (< 2,500 grams) Mother is treated during pregnancy with varying EITC depending on year and birth parity Vital statistics data on full census of births
Why infant health? Health at birth is an important predictor of later life economic and health outcomes Low birth weight measured and watched by most countries
$4,500 $4,000 $3,500 EITC Maximum Benefits by Number of Children (1999$) No Children 1 Child 2 or more children $3,000 $2,500 TRA 1986 OBRA 1990 OBRA 1993 $2,000 $1,500 $1,000 $500 $0 1983 1985 1987 1989 1991 1993 1995 1997 1999 Tax Year
Research Methods: Use Tax Changes to Identify the Effects of the EITC Focus on 1993 expansion: largest expansion, differential expansion by number of children Use before vs. after the 1993 expansion First births are the control group. We compare second births vs. first births, third and higher births vs. first births
Magnitudes OBRA93, Percent LBW Single Women Ed<=12 All White Black A. PARITY 2+ vs. PARITY 1 Treatment Effect -0.354-0.132-0.728 EITC increase (2009$) $521 $471 $624 Treatment on Treated per $1000 (2009$) -0.68-0.28-1.17 ToTper $1000 (2009$), % impact -6.69% -3.44% -8.09% B. PARITY=2, PARITY 3+ vs PARITY 1 Mean share of births that are LBW 10.2 8.2 14.9 Treatment Effect (2 vs. 1) -0.164-0.111-0.31 EITC Increase (2009$) (2 vs 1) $373 $335 $445 Treatment on Treated per $1000 (2009$) -0.44-0.33-0.70 ToTper $1000 (2009$), % impact -4.33% -4.07% -4.83% Treatment Effect (3+ vs. 1) -0.528-0.151-1.04 EITC Increase (2009$) (3+ vs 1)
Fraction Low Birth Weight (*100) 1999 Dollars Effect of 1993 tax reform on low birth weight Single women with <=12 years of education 0.4 0.2 0.0 OBRA93 phased in 1994-96 $5,000 $4,000-0.2 $3,000-0.4 $2,000-0.6 Parity 2 (relative to 1) Parity 3+ (relative to 1) -0.8 EITC 1 child (relative to 0) EITC 2+ (relative to 0) -1.0 1991 1992 1993 1994 1995 1996 1997 1998 $1,000 $0 Effective Tax Year
Magnitude of birth weight improvement lines up with predicted treatment OUTCOME = Low birthweight, DD1 ED16+ -.8 -.6 -.4 -.2.2 0 AGE35WH ED13 MARR NHISP AGE25 ALL ED=12 AGE18 HISP ED<12 SING HIGHIMP BL 0 100 200 300 400 500 600 700 OBRA93 Increase in EITC, T relative to C group
Mechanisms Increases in prenatal care and reductions in smoking are part of the pathway for our results for improving infant health This could be generated by additional income (affordability of prenatal care), employment (less smoking) Overall health insurance, if anything, declines. But there could be an effect for some of an upgrading due to the increase in private insurance
Concluding remarks The goal of safety net programs is to increase incomes at the bottom of the distribution and to smooth over shocks The costs of these programs needs to be weighed against the benefits Our work provides new evidence on the possible health benefits of the EITC In other work, we find that food stamps also leads to improvements in health at birth. We also find that greater access to food stamps in early life leads to longer term benefits adult health and economic outcomes