Growing Evidence Of How Earned Income Tax Credits Can Help Benefit Children

By Alan Richard

Interest has grown in the presidential race and on Capitol Hill over possible expansions of Earned Income Tax Credits (EITCs). ICS recently convened an expert panel in Washington to discuss how leaders might weigh EITCs’ impact on young children and their families.

At the federal level, the EITC is a refundable tax credit for families who work, “fading out” as family income increases. EITCs are drawing interest from across the political spectrum for their potential to make an even greater difference in low-income families’ lives than some more expensive programs, said Bryan Boroughs, ICS’s director of legislative affairs, in introducing the ICS panel discussion, held Aug. 25 at the University Club just blocks from the White House.

Panelists commented on ICS’s in-depth 2015 report, The Effects of the Earned Income Tax Credit on Child Achievement and Long-Term Educational Attainment,by former Michigan State University researcher Michelle Maxfield.

In fact, a whole flourish of new research is showing the benefits of EITCs and other income-related supports on children’s long-term success, said panelist Chye-Ching Huang, senior tax analyst at the Center on Budget and Policy Priorities in Washington. One study shows low-income families’ use of food stamps during the prenatal year led to better high school graduation rates—18 percentage points, she said.

Children on Medicaid do better in school, are more likely to graduate from high school on time, and have higher school attendance than children from similar-income families that don’t use Medicaid, Huang said.

EITC-Brookings Map
States adopt and adapt the EITC to address local need, Brookings Institution.

“We’re seeing these remarkable long-term changes in children’s outcomes and success,” Huang said. She recommended several key tax-policy priorities for states, including starting state EITCs to invest in children and families. Twenty-six states and the District of Columbia now have tax credits that build on federal EITCs.

Expanding EITCs may actually give government “more bang for your buck” than other popular early-childhood programs, including pre-K, argued Richard V. Reeves, co-director of the Brookings Institution’s Center on Children and Families. But expanding EITCs may not be easy.

Underlying the bipartisan support for expansions of EITCs, political leaders differ on how to go about paying for the tax credits and the purpose of doing so, Reeves said. President Obama favors raising taxes on wealthy Americans to pay for expanding EITCs, while Speaker of the House Paul Ryan favors cutting spending on other programs that help the poor, he said.

No matter how leaders proceed with the debate, Reeves recommends several issues to consider: First, policymakers set a specific goal for expanding EITCs—perhaps raising student achievement or improving child outcomes. “What is it we’re trying to do with the dollar here?” he asked, noting that outcomes may be over the long term, such as high school and college success rates.

Reeves urged that whatever measures are used to determine the impact of increased EITCs on families, they be based research, “or evidence-based policymaking,” not “policy-based evidence making.”

In his view, there are four possible ways to tackle race- and wealth-based education gaps in the U.S.: money (through EITCs or the minimum wage, etc.), services (pre-K, etc.), time (parental leave, etc.), and in parenting/family skills (nurse home visiting, etc). Different families benefit from more of one of these approaches than others, and policy should reflect that need. He added that he’s interested in home visiting programs to help families with early education, parenting and health care (ICS is helping expand such programs, including a $30 million expansion of the Nurse Family Partnership across rural areas of South Carolina).

Leaders should look specifically at child-care tax credits, said Angela Rachidi, a research fellow in policy studies at the American Enterprise Institute. These can be received as part of refunds during tax-filing season, she said.

A single mother with two children must earn $16,300 a year above minimum wage to earn even a modest tax credit, and people under age 25 don’t qualify for the credit at all. This happens even though one important study shows that children in lowest-income families can benefit the most in their achievement when families receive such tax breaks, she said.

“Right now, the very poorest children are left out,” said Rachidi, who lives in New York and served as deputy commissioner of the city’s Department of Social Services under Mayor Michael Bloomberg.

Expanding EITCs for childless workers also is gaining attention. House Speaker Ryan has proposed expanding those credits to benefit roughly 1.5 million noncustodial parents, young adults who may become parents, grandparents or guardians, and to reduce toxic stress on young adults and their families. Some low-income Americans must help support their parents, siblings or play a role in raising children in their families, she noted.

Rachidi urged policymakers to carefully weigh the potentially more substantial impacts of expanded EITCs versus other policies designed to help low-income families—even including a minimum wage hike, class-size limits and pre-K programs.

The ICS-Maxfield study adds to “a really large and increasing body of literature that shows EITC does have positive benefits to children,” she said. “EITC has much more positive benefits for children than these other policies.”

More research is needed on how families receiving EITCs and their communities or states may see benefits in other ways, including the impact on whether to seek employment. But challenges stand in the way of expanding EITCs, she said.

Some federal lawmakers question the high level of improper payments families receive—not from fraud but a lack of tighter controls that other programs such as TANF already have. Solutions to that issue have been studied by AEI and could include rules changes on how families are structured and children are claimed on tax forms. National chain tax preparers usually know how to do it correctly, but smaller providers or individuals may not, she said.

Such credits also can encourage couples not to marry, which may not be wise overall public policy, she added. Another factor: expanding tax credits can be extremely expensive, perhaps costing $8 billion a year.


Alan Richard is a veteran national education writer, formerly of Education Week, the Southern Regional Education Board and others. He contributes to the Hechinger Report and is the board chairman of the nonprofit Rural School and Community Trust. Follow him on Twitter: @educationalan.

Back to News