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Earned Income Tax Credit Limits Support For Those in Poor Health
Why the Main Tax Credit For Low-Wage Workers Needs an Update
A growing body of research has begun to illuminate the connection between one’s income and one’s health. Income support programs, such as the Earned Income Tax Credit (EITC), are powerful tools that support low- and middle-income workers.
The EITC serves as the main income support program for low-wage workers in the United States, granting $62 billion in benefits to more than 25 million low-wage workers in 2019. It is specifically designed to benefit those who work, and critically, individuals must have earnings to be eligible. EITC benefit amounts follow a phased design, with individuals receiving an amount that is a percentage of their earned income up to a maximum amount (“phase-in period”). Once the maximum amount is met, the credit remains flat until an individual reaches a certain income threshold, where the credit then declines with each additional dollar of income until no credit is available.
For people whose health prevents them from working (and from qualifying for the EITC), Social Security Disability Income, Supplemental Security Income, and other forms of support already exist. But what supports are there for individuals whose health limits their ability to work, but does not entirely prevent it?
A new study by Seth A. Berkowitz, Guarav Dave, and LDI Senior Fellow Atheendar Venkataramani explored how the phase-in model of the EITC creates a gap in income support for those with limited ability to work. This gap “could set up a vicious cycle”, or ‘poverty-health trap’, whereby poor health worsens the ability to earn income, and low earnings combined with a gap in income support policies further worsen health,” the authors write.
Poor Health Limits Benefit Access
Using 2020 U.S. Census data, the researchers found that those in poor health—defined as the presence of any challenges with hearing, vision, cognitive function, mobility, dressing and bathing, and independence in attending doctor’s visits or other errands—were more likely to be in the “no benefit” and “phase-in” categories of the EITC compared to those not in poor health. These results remained similar even when using different indicators of poor health or examining subgroups based on the number of dependents.
The researchers also considered how other government benefits factor in to provide additional income support. They found that those in poor health with no earned income often received meaningful financial support from other programs, such as the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance to Needy Families (TANF). However, there was a substantial number of workers in poor health who were working, but received low EITC benefits and low additional resources. In this group, 60% of people were in poverty despite working.
Unintended Consequences of the EITC
The study also showed that the EITC’s unique phased earnings model disadvantages those whose income is limited by poor health.
“The case of the EITC highlights the importance of health-poverty traps, where poor health and low income reinforce each other,” Venkataramani noted. “For those in poor health who still have the ability to work, low benefits due to the EITC phase-in and the lack of other income support increases risk of being trapped in this manner.”
Additionally, tying income to EITC benefits can further disadvantage those who experience systemic discrimination in the labor market. In particular, the intersections of race, gender, ethnicity, and health or ability status can result in varying levels of systemic discrimination that may limit employment opportunities and earnings, thus limiting access to EITC support.
Next Steps for Income Support Policies
While increased income support could improve health for those with lower incomes, the question of how to best offer this support remains—particularly for those who are in poor health to begin with.
“We want to be clear that we are not against programs like EITC that get income to those with too little of it,” said Dr. Berkowitz. “Just the opposite—we want to think clearly about how an overall set of social insurance programs can get income to everyone who needs it, and make sure people don’t fall through the cracks. The EITC works well in some cases, but in other cases, programs with different designs are needed.”
Further research may examine how removing earnings requirements, changing enrollment procedures, varying payment timing, or complementing the EITC with other programs may better support those in poor health.
The study, “Potential Gaps in Income Support Policies for Those in Poor Health: The Case of the Earned Income Tax Credit-A Cross Sectional Analysis,” was published on May 12, 2023, in SSM-Population Health. Authors include Seth A. Berkowitz, Guarav Dave, and Atheendar Venkataramani.
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