CRANE RESEARCH FORUM RECAP: Tax Policies and Child Development

September 2021

Written by Delaney Morphew

Our September Research Forum featured Dr. Lauren Jones, Crane Center faculty associate and associate professor in both the College of Education and Human Ecology’s Department of Human Sciences and the John Glenn College of Public Affairs. Dr. Jones’ research examined child tax credits in the United States and British Columbia to understand how these economic policies impact child development and well-being as well as the financial stability of families. 

Dr. Jones demonstrated how the socioeconomic status (SES) of families can affect a child’s overall health, including mental health. Additionally, research shows that a family’s SES may impact a child’s educational and professional outcomes into the future. Because tax policies directly impact household income, including economic decisions, these policies can then lead to behavioral responses that might affect child development. Child tax credits work to improve developmental outcomes through economic support, and Dr. Jones’ research showed that the effects are strongest among families experiencing the lowest incomes. 

This webinar presented findings that suggest the influx of family income can impact children’s mental health, educational, and future outcomes. Dr. Jones also studied different types of tax policies to see the effect on children’s test scores, physical aggression, and health while also providing insight into parent/caregiver stress levels, labor participation, and financial stability.

KEY FINDINGS

Dr. Jones evaluated the effectiveness of tax policies according to three measures, which included:

  • How cash infusions are spent, specifically around whether they are used to purchase resources (e.g., books, food, etc.) that support child development; 
  • How child tax credits relate to labor force participation and how this impacts child development; and
  • How reducing financial stress can improve household stability. 

She also examined three different types of child tax credit types: means tested, universal, and work based/earned income. She compared the types of credits with different amounts of support in order to measure the impact on child development.   

Means Tested Tax Credit

The Means Tested Child Tax Credit is adjusted based on income level, with the lowest income families receiving the greatest benefit. A study of Canada Child Benefit: Effects, by Milligan and Stabile (2011) found:

  • $1,000 of credit income improved math test scores by 6%, reduced physical aggression by 15%, and improved physical health by 5%.  
  • For every $1 received, families spent $0.46 on resources (i.e., food, childcare, etc.) and spent less on restaurants, tobacco, and alcohol. This demonstrates the tax credits could be reducing household stress. 

Universal Tax Credit

The Universal Tax Credit provides the same amount of credit for every family regardless of income status. Dr. Jones’ research showed: 

  • After five years of credit, the gap in test scores closed by 39% for reading, 34% in numeracy, and 30% for writing. 
  • Maternal work hours in married couples reduced. A reduction in work hours suggests mothers may have been able to spend more time with their children. 

Earned Income Based Tax Credit

Earned income tax credits (EITC) are paid to families participating in the labor force in a lump sum during tax season. Dr. Jones’ findings showed that: 

  • Families’ debt was reduced by 60% at the time EITC was received. 
  • Single mothers increasingly joined the labor force. 
  • It reduced work hours for married mothers. 
  • It improved math and reading scores and reduced behavioral problems. 

RECOMMENDATIONS

There are several possible policy recommendations from this research that could help provide financial stability to families in ways that could enhance child development and learning.

Federal: The American Rescue Plan expanded the Child Tax Credit, made credits fully refundable, and gave families the option to opt-in for lump sum payment. This change could be made permanent, as many policy advocates are currently calling for. 

Ohio: As Dr. Jones pointed out, Ohio is one of just five states without a fully refundable EITC. Making it refundable would help working families and further mitigate child poverty.