My pastor recently asked the congregation at our church how many of us were familiar with the EITC (or Earned Income Tax Credit). The EITC is a refundable credit against taxes owed available to low-income earners that lifts over five million people out of poverty a year, but as a sociologist and the daughter of two CPAs, I was the only member of our small congregation who knew that.
Eligibility for the EITC has recently been expanded a few different ways,1 and an article by Katherine Michelmore and Leonard Lopoo published in Demography in December gives us good reason to cheer that expansion. Simply put, the new research finds that children of EITC recipients are less likely to become young mothers, but no less likely to become mothers. More specifically, their results showed that a $1,000 increase in EITC exposure during childhood reduced the likelihood of having a child by age 21 by 0.8 percentage points (3%); but by age 25, the likelihood of having had a child did not vary with EITC exposure. Note that this is the effect associated with greater EITC generosity among all women; the effect for those most likely to be eligible was about three times larger, and there was no effect of EITC exposure in childhood among those who grew up in the top half of the income distribution, and those residing with always-married, college-educated parents.
Why does EITC exposure in childhood delay childbearing in early adulthood? Michelmore and Lopoo find some support that the primary mechanism is a greater likelihood of completing college. Childbearing is often delayed until education is completed. Children of recipients also have better health in adulthood and higher earnings. All of these are outcomes that would be expected in situations where parents are better able to invest in their children's health and education (aka human capital). Young adult women who would only be earning minimum wage if they stayed employed have relatively little to lose from early childbirth, compared to women whose earnings are on an upward trajectory.
The income provided from the EITC itself—it is a refundable tax credit which means that if the credit exceeds owed taxes, it is paid out as income—is only one of the reasons why recipients are better able to invest in their children. A large part of the reason that the EITC has greater bipartisan support than other poverty alleviation programs is that it encourages work: the credit is only paid to those with earned income. This means that recipients effectively get more than minimum wage when they work minimum wage jobs. When the costs of working—e.g., wardrobe, commuting, childcare, taxes—come close to the benefits, it may not make much sense for parents to divert time from home production into market work. The EITC makes working more rational. Children thus benefit from the credit and from parental earnings. "Further, children who grow up seeing their mothers work are less likely to become teen mothers."
Note that it is theoretically possible that the EITC could increase childbearing among young women since the generosity of the credit depends upon the number of children in the household (households with three or more kids get a bigger credit than those with two). Research inquiries into this possibility have found small, insignificant effects. Now we know that in addition to not increasing fertility in the parental generation, childhood EITC benefits delay fertility in early adulthood for the children in these families.
With income inequality rising in recent decades, policies that help break the intergenerational transmission of poverty are sorely needed. And we have one. As Michelmore and Loppo note in their conclusion
early childbearing is associated with a host of negative outcomes for both mother and child: for example, decreased educational attainment, poor labor market outcomes, increased likelihood of social welfare program receipt, and poor health.
The Republicans and Democrats who cooperated to launch the EITC and support its expansion likely never conjectured that this latent effect of delaying childbearing in the next generation would increase the cost-effectiveness of the program. My pastor isn't focused on the adult lives that children of today's EITC recipients will have, either. He has discussed EITC with our congregation because when we are able to worship in person (i.e., not during the current Omicron surge), we meet in a rent-free space in a nearly dead shopping mall in the poorest area of Montgomery County, MD. The county as a whole is relatively wealthy, but nonetheless, an estimated 38,000-40,000 people have become eligible for state and local EITCs for the first time this year. What has changed to make them eligible? Non-citizen taxpayers file with Individual Taxpayer Identification numbers (ITINs) instead of Social Security numbers (which are available only to citizens). The state of Maryland and Montgomery County have joined the jurisdictions offering EITCs to filers with ITINs. This means that low-income non-citizens are now eligible for a tax credit they have probably never heard of. Our church is hoping to express Jesus’ love for the marginalized by working to connect eligible taxpayers with this resource because we believe that their material well-being matters here and now.
For me, assessing Michelmore and Loppo's evidence that the EITC has benefits that spillover into the next generation—and finding it technically sound—has further increased my motivation for participating with Volunteer Income Tax Assistance (VITA), an IRS program that helps taxpayers access their benefits. Now I know that increasing access to the EITC can help parents and children today and assist today's children in becoming more successful parents in the future.
1. Eligibility now starts at 19 for those who are not parents instead of 25 like last year, the credit has become more generous, and it has been expanded to non-citizen taxpayers as discussed here. The ETIC is still unfortunately structured to penalize marriage.