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Fostering academic achievement through the Earned Income Tax Credit

By Megan Carolan, Associate Director for Policy Research

The Earned Income Tax Credit (EITC) has the power to improve educational outcomes for children whose families receive it, according to a new analysis ICS is releasing today. Michelle Maxfield, PhD, of Michigan State University, used variations in federal and state EITC policies over time to study the impact on academic achievement of children in families who received an increase in the maximum amount available in the EITC.

  • An increase in the maximum EITC of $1,000 (2008 dollars) in a given year significantly increases math achievement by about 0.072 nationally normed standard deviations.
  • This change in EITC generosity during childhood also increases the probability of graduating high school or receiving a GED at age 19 by about 2.1 percentage points and increases
    the probability of completing one or more years of college by age 19 by about 1.4 percentage
  • An increase in the maximum EITC of $1,000 also results in other changes in the household, including an increase in net family income inclusive of EITC and welfare payments of about $888 and an increase in maternal labor force participation.
Keyboard Key reading "EITC"
Photo credit: GotCredit.com, used under a Creative Commons license.

Maxfield’s analysis also found that the impacts of the EITC were larger for boys and minority children, as well as having more of an impact when children are younger during an expansion. As a refundable tax credit which benefit low-income families based on earned income, the EITC has far-ranging impacts on employment rates, salaries, and local economy spending. Maxfield’s research is in good company with other studies highlighting the impacts of the EITC, which include benefits to maternal and child health.

The EITC can play a crucial role in supporting low-income working families. The Census Bureau recently released new poverty data which used not only the official U.S. poverty measure, but also a supplementary measure which includes in-kind benefits as well as subtracted the cost of “necessary expenses” such as taxes, health insurance, and work-related expenses. This Supplementary Poverty Measure (SPM) found a poverty rate of 15.3 percent in 2014; the Census Bureau notes that without refundable tax credits (including the EITC and the refundable portion of the child tax credit), the poverty rate would have been 18.4 percent. For children, the poverty rate found by SPM was 16.7 percent; without refundable tax credits to families, child poverty would have been 23.8 percent.

The Center for Budget and Policy Priorities refers to the EITC, combined with the Child Tax Credit, as “the nation’s most powerful anti-poverty program.” And they are not the only ones; CBPP highlights a bipartisan coalition of organizations and individuals who have pushed for an expanded EITC at the national level. The conservative think tank the American Enterprise Institute has written in support of expanding the EITC, calling it “social resources to meet a social goal.”

An accompanying issue brief with today’s ICS report highlights how a refundable state EITC can support child and workforce development, noting that 25 states and D.C. currently offer a refundable EITC to strengthen the impact of the federal EITC. The Brookings Institution has created a map to track state EITC policies. States not currently offering their own EITC should strongly consider developing their own, taking the lead to support working families. The EITC, in Maxfield’s words, “appears to be an effective policy for improving educational outcomes of children, especially for the most disadvantaged,” and one that deserves a place in any conversation about improving the lives of America’s children.

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