We talk a lot about the earned income tax credit (EITC) and how enacting a state credit could help the economic security of low-income families here in Montana. In Part 2 of our back-to-school series, we’re taking a closer look at how the EITC improves the educational achievement and college attendance of recipients’ children.
New research finds that experiencing poverty earlier in a child’s life can be especially harmful to his or her achievement skills and cognitive development. Therefore, policies that encourage work and boost income for families (like the EITC), can alleviate poverty and have a positive impact on children, now and in the future.
The EITC improves school performance. Researchers studied the receipt and effects of the EITC over several decades. They found that for every $1,000 a family received from the credit, test scores in reading, and particularly math, significantly increased among children in elementary and middle school years.
The EITC increases the likelihood of graduating from high school or completing a GED. When a child has better performance earlier in his or her educational career, they are better equipped to keep up with their peers, excel, and do well in high school, which translates to higher graduation rates. One study found that for every $1,000 a family received through the EITC, a child’s probability of graduating high school or completing a GED increased 5 percentage points, compared to a similar child whose parents did not receive the EITC. Among the population studied, 75% of students were expected to graduate or receive a GED. Results suggest that receipt of the EITC had the potential to boost graduation rates to 80% among low-income students.
The EITC increases the likelihood of attending college and makes tuition more affordable for low-income families. The same study that revealed the EITC’s affect on graduation rates also found that the credit increased the probability that a student was more likely to complete one or more years of college by age 19. And, because EITC boosts income particularly in spring (during tax season), low-income parents are in a better position to afford college for their child the following fall. For example, a high school senior whose parents receive an EITC of $1,000 in spring is 10% more likely to enroll in college in fall. As you may have guessed, enrollment rates were higher in states that have enacted state EITCs.
Aside from Social Security, the federal EITC is the most effective anti-poverty policy in the country. We know it encourages work among low-income families by boosting their income and helping them rise out of poverty and become financially secure. But now, new research reveals that the benefits of the EITC extend to the next generation and set children up to do better school and beyond. Extending a state EITC in Montana would further support low-income families and help increase the likelihood that their children will excel in secondary school, graduate on time with their peers, and attend college.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.