A Process to Quantify the Health Impact of State Tax Policy

To examine the potential effects of creating a state-level earned income tax credit for low-income workers, experts in 2019 conducted a detailed health impact assessment (HIA) of a proposal before the Arkansas Legislature.

The analysis of baseline health condition data in the state showed existing disparities based on income and race. Combined with literature review findings, the data suggested an opportunity to improve the health of lower-income families through a state-level tax credit that would build on the federal version. The HIA found that 287,000 households in Arkansas were eligible for federal earned income tax credit (EITC) benefits in 2017.

Although lawmakers did not take final action on creating the state credit, the HIA provided critical context on the relationship between such economic issues and health. Research shows that policies in sectors such as housing, transportation, and employment can affect health conditions. HIAs help communities and decision-makers understand the potential effects of decisions across sectors; how the impact might disproportionately affect different racial, income, geographic, and other groups; and how specific actions could improve health outcomes or avoid unintended negative consequences.

Over 440 HIAs have been conducted across the U.S., including the one done in Arkansas last year.

Aimed at helping workers earning relatively low wages, the federal EITC provides a refundable tax credit. Eligibility is based on various factors, including the number of qualifying children and household income. For the 2018 tax year, the credit ranged from $519 for a tax filer without children to $6,431 for a family with at least three children. For tax year 2015, 19% of those filing federal taxes—about 28 million—claimed the EITC at a cost of $68.5 billion, making it the largest federal need-tested anti-poverty cash assistance program.

Twenty-nine states, the District of Columbia, Guam, and Puerto Rico have enacted their own EITCs. Most of these jurisdictions use the same eligibility requirements as and set credits at some percentage of the federal EITC. Recipients typically receive both credits.

In Arkansas, both chambers of the Legislature considered measures in 2019. That March, the Senate passed a bill to create a state EITC equal to 5% of the federal level. It would be paid for through taxes on cigarettes and e-cigarettes. In the House, however, legislation to create a 10% EITC was referred to committee but did not get a floor vote.

To understand how the proposals could affect the health of potential credit beneficiaries, Arkansas Advocates for Children and Families, a nonprofit child advocacy organization, partnered with Children’s HealthWatch, a nonpartisan national network of pediatricians, public health researchers, and children’s health and policy experts, to conduct an HIA.

The HIA process typically follows six steps intended to engage stakeholders, systematically consider a proposal’s effects on health, and provide recommendations to maximize health benefits and minimize preventable risks, such as chronic disease and nutritional deficiencies. An advisory committee representing a range of urban and rural perspectives, including the faith community, academic institutions, and social service providers at the state and county levels, guided the Arkansas HIA.

Leveraging the relationship between Children’s HealthWatch and Arkansas Children’s Hospital in Little Rock, the HIA team had access to more than 20 years of data to assess the relationships between family economic circumstances and the health of children and caregivers.

The HIA literature review found a growing body of research demonstrating the relationships between state and federal EITCs and improved health outcomes. Expanding these credits has been linked to improvements in self-reported health status and reductions in symptoms of depression among mothers.

Some research shows positive associations between EITCs and health-related measures such as improved diet and decreased tobacco use. A recent study found that EITCs also are associated with increases in private health insurance for children, decreases in public coverage, and improvements in children’s reported health status.

Other state EITC analyses, including one in Massachusetts, have shown that the benefit can generate economic activity, reduce housing cost burdens, and improve educational outcomes for children in households receiving the credit.

In assessing such proposals, HIAs can uncover health impacts that may have otherwise been masked, raise awareness among the public and policymakers of the potential benefits, and show the links between health and income. These systematic tools can be used across many sectors to understand the connections between various policies and health. By helping decision-makers consider evidence as they allocate resources across communities, especially those most at risk for poor health outcomes, HIAs can focus attention on investments that promote health and reduce inequities.

Bethany Rogerson is a senior manager and Emily Bever is a senior associate with the Health Impact Project.