Filing Taxes: Good For Your Health

It’s tax season again, and despite its notoriety, it is during this time of the year that millions of low-income Americans stand to benefit greatly from a key refundable federal tax credit. In 2011 alone, over 27 million working individuals and families claimed the Earned Income Tax Credit (EITC) to the tune of almost $62 billion, according to the Internal Revenue Service. US Census data reveal EITC refunds lifted almost 6 million people out of poverty in 2011, including 3 million children.

The widespread scope of this income transfer, in tandem with a decline in influence of traditional cash assistance through the Temporary Assistance for Needy Families (TANF) program has motivated a growing body of literature about the program. Researchers at the University of California, Davis recently added to it by looking into one often overlooked benefit of the EITC: improved infant health outcomes. As the authors note, infant health outcomes, particularly infant birth weight, is an important predictor of future health and economic success.

During the late 1980s and early 1990s the EITC underwent three expansions. One of the largest occurred in the Omnibus Reconciliation Acts of 1993 (OBRA93), which phased in an increase in the maximum credit for families with two or more children of $2,160 (in 1999 dollars). Using the change in the EITC credit under OBRA93, authors Hoynes, Miller, and Simon attempt to isolate the impact of the tax refund on infant health outcomes, especially infant birth weight, by comparing the trends before and after the expansion.

The authors used US Vital Statistics Natality Data, which includes a full census of births from the National Center for Health Statistics, from years around the expansions (1983 to 1999). Limiting the sample to mothers age 18 and older, the authors examined women by state of residence, month and year of birth, parity of birth, education of the mother, and marital status of the mother. After separating the sample by some of these characteristics, they calculated different group statistics, including average birth weight and fractions of births below different birth weight levels. Finally, the authors examined how timing of a mother’s birth coincided with the receipt of tax refund payments.

Since the OBRA93 expansion varied by family size, the authors compared births of different orders (second and higher to first births), while controlling for factors such as unemployment rate, welfare reform and other social program eligibility thresholds. In other words, without the expansion, a mother’s first child (the control group), should have similar outcomes to a mother’s second and third children (the treatment group). Focusing on a high impact sample, single women with a high school education or less, as other literature does, they find this is not the case – low birth weight status is reduced for second and higher births compared to first births as well as the mean. The results of an event study analysis suggests that there was not a pre-trend of decreasing birth weights prior to the expansion that could explain some of the observed changes. Finally, in attempt to quantify the treatment, the authors estimated the “impact of $1,000 treatment on the treated.” They find that for single low education mothers, $1,000 is associated with a 6.7 to 10.8 percent reduction in low birth weight.

The authors find the largest improvements in child health are associated with the groups with greater increases in the EITC – higher births, greater socioeconomic risks, or both. While they can only postulate why the income increase impacts the birth weight and other health outcomes – less stress, and increased access to health services to name a few – they make a case for additional research on health impacts from non-health safety net programs. They conclude that any discussions about the value of the US safety net should be broader than the immediate impacts of the program and instead include external program effects such as these non-trivial health ones.

Feature Photo: cc/DFID – UK Department for International Development