How a Child Tax Credit Can Improve Children’s Health

More than one in seven Illinois children or approximately 425,000 Illinois children lived in poverty in 2022. Of that number, just over 218,000 children (or 8% of all Illinois children) lived in households with incomes less than half of the federal poverty level or what is termed extreme poverty.[i] (In 2022, a 50% poverty threshold for a family of two adults and two children was $14,839.) Within that number, 22% of Illinois Black Children were in extreme poverty compared to 4% of white/non-Latinx children.[ii]

Using the U.S. Census Bureau’s Supplemental Poverty Rate, which takes into account benefits such as nutritional assistance and subsidized housing as well as taxes and other expenses for work, medical care, clothing shelter and utilities, 2022 numbers show an estimated 381,000 Illinois children in poverty.

Child poverty can impact a child’s health well into adulthood. In 2015, Congress directed the National Academies of Sciences, Engineering, and Medicine to conduct a comprehensive study of child poverty in the United States.[iii] The group assembled by the National Academies found overwhelming evidence that a child growing up in poverty experienced worse outcomes than a child from a wealthier family with respect physical and mental health, educational attainment, labor market success, and risky behaviors. The reasons may be with respect to the inability to make direct investments (or the purchase of goods and services that include food and housing) by parents as well as stress brought on by poverty for both a parent and child.[iv]

Source: National Academies of Sciences, Engineering, and Medicine

Past studies on children growing up in poverty have shown:

• Income has a significant relationship to birth-weight. The lower the household income level the higher the correlation to low-birth weight.[v] Babies born with a low-birth weight are at increased risk of dying in the first year of life.[vi]
• Poverty impacts a child’s brain development. In one study, infants, toddlers, and preschoolers from lower income families had lower total gray matter compared with those from middle and high-income households by toddlerhood.[vii]
• Growing up in poverty can cause toxic stress – or prolonged and severe exposure to stress- in a child. Toxic stress can disrupt the development of the brain.[viii] In addition, toxic stress (and its interaction with other factors such as air pollution) can result in cognitive deficits and emotional disorders in children.[ix]

Family Povety Affects on the Rate of Human Infant Brain Growth
SES= socioeconomic status

 

Yet, economic supports can help tackle poverty and prevent such risks.

Action by the federal government to increase the federal Child Tax Credit in 2021[x], along with other family economic supports, helped reduce child poverty in the United States by nearly half.[xi] Unfortunately, the enhanced credit, and its impact, lasted for only one year.

Recognizing the important role such supports can play in a child’s development, fourteen states have now have enacted some form of a Child Tax Credit. Not only does Illinois not have a state Child Tax Credit but its tax system compounds the circumstances of low-income households.  According to the Institute on Taxation and Economic Policy, the lowest 20% of low-income households in Illinois pay more than twice their share of income in state and local taxes than the top 1%.[xii]

A refundable state Child Tax Credit can help Illinois improve the health of its children and make our state and local tax system more equitable. There is evidence that an economic support, such as a Child Tax Credit, improves children’s health:

Low-Birth Weight

• A review of states with an Earned Income Tax Credit (EITC) showed state EITCs increased birth weights by, on average 16 gm.[xiii]
• Another study of four changes to the Washington, D.C. EITC found a pattern of significant improvements across infant outcome measures, with the size of the effect estimate matching the magnitude of the tax credit—ranging from a 1.9 (-2.9, -0.9) reduction in rate per 100 births of low birth weight for a smaller 10% credit, to a 4.7 (-5.4, -4.0) reduction with a 40% credit.[xiv] The study also suggests that D.C.’s tax credit policy prevents an estimated 349 infants per year from being born with low weight.

Brain Development

• A study published in 2023, documents that in high cost-of-living states providing more generous cash benefits for low-income families socioeconomic disparities in the hippocampal volume (or size of the hippocampus) were reduced by 34%.[xv] While other factors may be in play, researchers found “the patterns were robust to controls for numerous state-level social, economic, and political characteristics”.
• Another study looking at infant brain activity, with one group of mothers given a nominal monthly unconditional cash gift and another given a large unconditional cash gift, showed infants in the large cash gift group showing more brain activity in high-frequency bands (particularly in frontal and central brain regions) than the group receiving nominal cash gifts.[xvi]

Other factors

• The expanded federal Child Tax Credit significantly improved food security and healthy eating among those eligible. Compared to ineligible households, CTC-eligible households were:

o 1.3 times more likely to increase fruit consumption.

o 1.5 times more likely to increase meat and protein consumption.

o 1.4 times more likely to report increased ability to afford balanced meals.[xvii]

• Researchers found that a $1,000 cash transfer to a one-child, single-parent low-income family produced social benefits (including future earnings of children, decreased neonatal mortality, avoided expenditures on child protection and health care costs among others) five times greater than the initial transfer.[xviii]

With racial and ethnic disparities in incomes, and the resulting disparities in children’s health, Illinois can take a major step forward in creating better health outcomes by enacting a refundable state Child Tax Credit. Improved outcomes should also help reduce the need for certain state services that address the negative impacts for poverty on children.

Illinois Governor J. B. Pritzker has proposed a state Child Tax Credit for children under the age of three worth 20% of the taxpayer’s state earned income tax credit. (The total state cost is estimated at $12 million.) However, a current proposal before the Illinois General Assembly would create a more robust $300 per child credit for most families below the state household median income. As the General Assembly heads towards a scheduled May 24^th adjournment date, it must make a strong refundable Child Tax Credit part of the approved state budget for the upcoming fiscal year.

Written by Mitch Lifson

Endnotes:

[i] U.S. Census Bureau, American Community Survey

[ii] Annie E. Casey Foundation

[iii] National Academies of Sciences, Engineering, and Medicine. (2019). A Roadmap to Reducing Child Poverty. Washington, DC: The National Academies Press.

[iv] Ibid

[v] Finch, BK. (2003, December). Socioeconomic gradients and low birth-weight: empirical and policy considerations. Health Services Research. 38(6 Pt 2):1819-41. doi: 10.1111/j.1475-6773.2003.00204.x.

[vi] Gupta, R.P., de Wit M.L., McKeown D. (2007, October). The impact of poverty on the current and future health status of children. Pediatric Child Health. 12(8):667-72. doi: 10.1093/pch/12.8.667.

[vii]  Hanson, J.L., Hair, N., Shen. D.G., Shi F,  Gilmore, J.H., Wolfe, B.L., et al. (2015) Family Poverty Affects the Rate of Human Infant Brain Growth. PLoS ONE 10(12): e0146434.

[viii] Harvard University Center on the Developing Child. Toxic Stress. Retrieved at https://developingchild.harvard.edu/science/key-concepts/toxic-stress/

[ix] Columbia University Mailman School of Public Health. (2016, May 16). Unequal Stress: How Poverty is Toxic for Children’s Brains. Retrieved at https://www.publichealth.columbia.edu/news/unequal-stress-how-poverty-toxic-childrens-brains

[x] Congress increased the maximum credit level from $2,000 per child to $3,600 for children under the age of six and $3,000 for children ages 6-17 and  made the full value of the credit available to more low-income families.

[xi] Gould E. (2022, September 22). Child Tax Credit Expansions were Instrumental in Reducing Poverty Rates to Historic Lows in 2021. Retrieved at https://www.epi.org/blog/child-tax-credit-expansions-were-instrumental-in-reducing-poverty-to-historic-lows-in-2021/

[xii] Institute on Taxation and Economic Policy. (2004, January). Who Pays? A Distributional Analysis of the Tax Systems in All 50 States – 7^th edition.

[xiii] Strully, K.W., Rehkopf, D.H., Xuan, Z. (2010, August 11). Effects of Prenatal Poverty on Infant Health: State Earned Income Tax Credits and Birth Weight. American Sociological Review ;75(4):534-562.

[xiv] Wagenaar, A.C., Livingston, M.D., Markowitz, S., Komro, K.A. (2019, January 16). Effects of changes in earned income tax credit: Time-series analyses of Washington DC. SSM Population Health;7:100356

[xv] Weissman, D.G., Hatzenbuehler, M.L., Cikara, M. et al. (2023). State-level Macro-economic Factors Moderate the Association of Low Income with Brain Structure and Mental Health in U.S. Children. Nature Communications; 14, 2085

[xvi] Troller-Renfree, S.V., Costanzo, M.A., Duncan, G.J., Magnuson, K., Gennetian, L.A., Yoshikawa, H., Halpern-Meekin, S., Fox, N.A., Noble, K.G. (2022, February 1). The Impact of a Poverty Reduction Intervention on Infant Brain Activity. Proceedings of the National Academy of Sciences of the United States of America;119(5):e2115649119.

[xvii] Hamilton, L., Roll, S., Despard, M., Maag, E., Chun, Y., Brugger, L., Grinstein-Weiss, M. (2022, April). The Impacts of the 2021 Expanded Child Tax Credit on Family Employment, Nutrition, and Financial Well-Being. Brookings Working Paper #173

[xviii] Garfinkle, I., Sariscsany, L., Ananat, E., Collyer, S., Hartley, RP, Wang, B., Wimer, C. (2022, March). The Benefits and Costs of a U.S. Child Allowance. Working Paper 29854, National Bureau of Economic Research