A Process to Quantify the Health Impact of State Tax Policy

Originally published on The Pew Charitable Trusts.

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.