Baxandall-Testimony-to-Committee-on-Revenue





Thank you members of the Joint Committee on Revenue for the
opportunity
to address you on this important topic. The Massachusetts Budget and
Policy Center is an independent nonprofit organization that produces
nonpartisan policy research and analysis focused on improving the lives
of low- and middle-income people and improving the quality of life in
Massachusetts.



We find the research on the Earned Income Tax Credit is clear that this
refundable tax credit for low-income working families yields
significant benefits for family employment, health, education, and
lifetime earnings.



HEALTH


The health benefits of giving families greater opportunity to
overcome
economic hardship is not just a “side benefit.” A
major study in the Journal of the American Medical Association finds
the difference in life expectancy between the highest-income
individuals and those with the lowest incomes is 15 years for men and
10 years for women, a gap that has widened over time.


One way that policy can help ensure better health for the
whole
Commonwealth is through effective income-support policies that enable
families to make ends meet, such as the Earned Income Tax Credit.


For infant health, research finds that birthweights and
gestation times
improved in states that provided an additional state match to the
federal EITC. Improvements were most significant in states with larger
state EITC rates. This is thought to be largely because mothers have
reduced economic stress and have a greater ability to obtain healthy
foods and care.


Research by economists at UMass, Amherst found EITC benefits
in
neighborhoods with a high concentration of EITC households can reduce
low birthweights even for people not eligible for the benefits. This
may be because increasing economic activity in these neighborhoods
leads to reduced stress, less crime, and other benefits that spill over
across the neighborhood.


One indicator of the program’s health benefits is
that EITCs
are listed on the federal Center on Disease Control’s Health Impact in
5 Years (HI-5) shortlist of non-clinical, community-wide approaches
that have evidence reporting 1) positive health impacts, 2) results
within five years, and 3) cost effectiveness and/or cost savings over
the lifetime of the population or earlier.



EDUCATION


A large body of research has also shown that the EITC is
associated
with improved educational achievement. For instance, the EITC has been
linked to improved test scores as



well as higher high school graduation rates and college enrollment. One
study found a sizeable credit during a child’s early years
could boost his or her achievement at the same rate as two extra months
of schooling. Researchers found that the timing of the tax credit also
is important — tax refunds in the spring of the high school
senior year, particularly when students are finalizing higher education
decisions, can increase college enrollment slightly.



INCREASED EARNINGS



Because children raised in EITC-supported households tend to grow up
healthier and do better in school, they also tend to earn more as
working adults. In one study “researchers projected that each
dollar of income through tax credits may increase the real value of the
child’s future earnings by more than a dollar.”
Moreover, by encouraging work and therefore increasing direct earnings
during one’s career, the EITC also leads to stronger
retirement benefits, including Social Security benefits.



IMPROVED TAX FAIRNESS


Lastly, I want to note an additional benefit of the EITC,
which is that
it helps to even out the tax contributions of different households
across the Commonwealth. At present, Massachusetts’ revenue
system is “upside-down” because it asks those with
lower incomes to contribute a larger share of their incomes in state
and local taxes than it does for those with higher incomes. Those with
lowest fifth of incomes in the Commonwealth contribute on average 10
percent of their incomes in taxes. The broad middle class with incomes
in the middle three-fifths of the income spectrum contribute a little
over 9 percent of their incomes. Meanwhile, people with the highest one
percent of incomes pay on average less than 7 percent of their incomes
in state and local taxes. As a portion of income, those with the
greatest ability to pay contribute the least.


This situation came about because over the last two decades
Massachusetts cut its tax rate on earned income, dividends, interest,
and capital gains. While these progressive taxes have been cut, the
Commonwealth turned to sales taxes and other regressive user fees.
The EITC is a highly progressive tax credit because its benefits are
fully targeted to low- and middle-income working families. An expanded
EITC would be a small but meaningful step toward turning our
upside-down tax system right-side up.


Thank you for your attention and consideration.



Phineas Baxandall


Senior Analyst, Massachusetts Budget and Policy Center



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