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  June 15, 2017

EITC Not Only Reduces Poverty, But Improves Health of Communities

While Trump seeks to dramatically reduce federal spending for the poor, study shows that the Earned Income Tax Credit (EITC) benefits not only the lives of those who receive it, but also of entire communities, Jeanette Wicks-Lim and Peter Arno of PERI explain
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Jeannette Wicks-Lim is an economist at the Political Economy Research Institute (PERI). She completed her Ph.D. in economics at the University of Massachusetts Amherst in 2005. Wicks-Lim specializes in labor economics with an emphasis on the low-wage labor market and has an overlapping interest in the political economy of race. Her dissertation, Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws, is a study of the overall impact of mandated wage floors on wages. Specifically, she provides empirical estimates of the extent to which mandated wage floors cause wage changes beyond those required by law, either through wage effects that ripple across the wage distribution or spillover to workers that are not covered by mandated wage floors. Jeannette regularly publishes commentary in Dollars & Sense.

Dr. Peter Arno is an economist and Senior Fellow and Director of Health Policy Research at the Political Economy Research Institute at the University of Massachusetts-Amherst and a Senior Fellow at the National Academy of Social Insurance.


Aaron Maté: It's the Real News. I'm Aaron Maté. The Trump Republican budget cuts threaten social programs across the board. With that, higher US poverty. Now one policy that's been found to help reduce poverty is the earned income tax credit. The EITC offers a tax incentive for low income earners to find work. The EITC has lowered poverty for more than 27 million people. Well now a new study finds that it also has benefits for people's health and the health of their neighborhood.

Jeannette Wix-Linn and Peter Arneau co-authored the report. They are with the Political Economy Research Institute at the University of Massachusetts Amherst. Welcome to you both.

Jeannette: Hi. Thanks for having us.

Peter : Thank you.

Aaron Maté: Thank you for joining us. Peter, I'll start with you. Can you explain to us what the EITC is?

Peter : Well it's a, at the federal level, the federal EITC is a refundable tax credit. You get a roughly a 40% increase in your income up to a point to supplement your income. If your wage income reaches a certain level, you get a subsidy. This is true also, most importantly, even if you pay no taxes. That's why the refundable nature of the federal part is so important.

Aaron Maté: There are also some states who add on an additional credit, right?

Peter : There's 25 states, plus the District of Columbia, which has state supplemental credits that add on to the federal credit. In a place like New York City, where we conducted the study, New York City has introduced a supplemental credit on top of the state credit and on top of the federal credit.

Aaron Maté: Quickly, can you explain how this initiative helps lift people out of poverty? The figures are something like six million people have been lifted out of poverty. Overall, it's helped about 28 million people.

Peter : Well it's over six million people per year that are basically the income crosses the federal poverty threshold line. I would just add that, of that six to seven million people, at least three million are children. It's probably the most effective anti-poverty policy for kids in this country, and one of the most effective for adults, as well. It's far larger than the quote unquote welfare programs that exist under TANF and other things.

Aaron Maté: Jeannette, Peter mentioned that your study focused on the increase in the EITC in New York. Your study, I believe, is the first to examine that impact on neighborhood health. Can you explain what you found?

Jeannette: Yeah. There's been a lot of research that has looked at the relationship between income and health. There's the obvious finding that lower income is associated with worse health outcomes. What we know about poverty in United States is that poverty in the United States is very concentrated in certain neighborhoods. These two things combine when we think about an anti-poverty economic policy like the earned income tax credit that provides benefits in a concentrated way into high poverty neighborhoods. We thought, "Well what might the impact be on health outcomes of the wider community in a high poverty neighborhood when you see these EITC benefits flowing into these neighborhoods in a very concentrated way?"

Our study looks at not just the impact of the earned income tax credit on health by itself, but rather what is the impact of the earned income tax credit on the community that is receiving a large injection of income from the EITC because there's this high concentration of poverty in specific neighborhoods. What we found was that there is research already that shows the relationship between EITC and improved health outcomes. What we find is that there's an even larger impact if you look community wide. If you look across the neighborhood in these high poverty neighborhoods, you actually see a larger improved health outcome from the EITC.

Aaron Maté: What are the metrics that you used to arrive at that conclusion? What do you attribute the reasons to?

Jeannette: Sure. The metrics. We looked at a few different health outcomes. The first was low birth weight rate, whether or not this goes up or down with increases in the EITC benefit. We also looked at whether or not somebody, a pregnant mom, is getting prenatal care late or at all. Of course, if they're getting prenatal care, that's going to presumably improve health outcomes. Then we also looked at the rate of pediatric related asthma. Pediatric asthma of belated hospitalizations. Those are the three metrics we looked at. What we found was, with the low birth weight rate, in particular, that that improved with increases in EITC benefits.

I'm sorry. The other question you asked was what do you attribute it to. Again, it goes back to what we know about poverty in the United States is that it's concentrated in certain neighborhoods. What you see with EITC benefits is that these benefits flow to these neighborhoods in a very concentrated way. You can imagine, if there's an injection of income, this can have wider positive effects across the community, rather than just having the impact on the individual household that receives that benefit. We looked at what is the overall measure of low birth weight rates for a full income neighborhood, not just looking at individual households across all neighborhoods.

Aaron Maté: Peter, based on these findings, what are the policy implications here?

Peter : The main policy implication is that we need to first of all, recognize the extraordinary value of a social policy, such as the earned income tax credit, and not allow it to be lowered in any way. In fact, in some cases, it should be raised. As I said earlier, 25 states have a supplemental credit. While there are a few other states that don't, quite a few. There's been much political action at the state level to introduce state supplemental credits because we believe, and our research supports the fact, that the supplemental credits in addition to the federal credit, do help improve health outcomes. That's number one. There is talk now, under the current administration, of pulling back even on the federal credit, which is ... This policy has had bipartisan support since its introduction in the 1970's. It would be a shame to see that program diminished.

Now the biggest policy push on the earned income tax credit these days is the fact that it mainly goes to families with young children. That's good, but for those single adults or even couples that do not have children, the benefit is very, very limited. There has been a major policy push to coordinate and increase the tax credit for adults without children. This would be a great way to A, improve the, get employment up, and improve health among single adults.

Aaron Maté: Finally, Jeannette, since your study identifies just one area where this specific policy had tangible health benefits, I'm wondering if you can comment on the overall state right now of the country, in terms of the link between inequality and health. There was a recent series in the medical journal, The Lancet. One of the things that they pointed out was that the life expectancy gap between rich and poor Americans has been widening since the 1970's, with wealthiest Americans having an average life expectancy, on average, 10 to 15 years longer than the poorest Americans. I'm wondering if you could comment overall on the link between inequality and health?

Jeannette: Yeah. Well I think one of the main takeaways I think our study should bring to your audience is that when you think about anti-poverty economic policy, we should be thinking about what that impact has on health. Not to see these two things as separate policy arenas, but when we're talking about inequality and the policies that reduce inequality, we're talking about ways to improve health. Policy makers should really be thinking about anti-poverty policies as another policy tool that they can use to promote public health. Again, when we're thinking about evaluating anti-poverty economic policies, we should be thinking about what are the public health benefits that we should also be taking into account, or when we think about whether or not we should expand them or not.

I think that the main takeaway is to try to understand how inequality and health are intertwined, and therefore our policies should treat them as intertwined when we have strong anti-poverty policies, that will have an impact on our public health.

Aaron Maté: Jeannette Wix-Lynn and Peter Arneau are with the Political Economy Research Institute at the University of Massachusetts Amherst. Thanks to you both.

Peter : Thank you.

Aaron Maté: Thank you for joining us on The Real News.


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