A National Prescription for Health: Tax Credits

There is a clear link between poverty and suboptimal maternal-child health.^1–3  Both the American Academy of Pediatrics and the National Academy of Medicine (NAM) have called for expansion of cash transfers in the form of tax credits to decrease child poverty.^1,2  The NAM analyzed evidence-based, nonpartisan strategies to reduce child poverty by 50% over the next decade. They developed packages of these strategies, including combinations of increasing the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), child care subsidies, minimum wage, Social Security income, the Supplemental Nutrition Assistance Program, and housing vouchers. They also assessed a scaled-up work training program and eliminated immigration-related restrictions on welfare.²  Notably, increasing the CTC (in the form of a child allowance) to $3000 per child per year was the only policy the NAM found powerful enough to meet the 50% reduction goal on its own.² 

Approximately 13 million children live in poverty, making the NAM’s goal an audacious one. However, we have an opportunity to make progress toward its achievement. The Working Families Tax Relief Act (WFTRA), components of which were recently included on a temporary basis in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act passed in the US House of Representatives in response to the COVID-19 crisis, would modify the EITC and CTC in ways that align with some of the NAM's recommendations. It could decrease the poverty rate by 28%,⁴  equating to 3 million fewer children growing up in poverty.

The best evidence available indicates that these unrestricted cash transfers, which allow families to spend the money however they choose, improve health outcomes. A Canadian unrestricted prenatal cash transfer program is associated with decreased rates of preterm birth and low birth weight and increased rates of breastfeeding.⁵  The EITC has also been associated with these effects,^2,6,7  and with decreases in rates of maternal depression and a reduction in inflammatory biomarkers.^6,8 

Some wonder how cash transfers not explicitly linked to spending on health care services could improve health. Studies suggest that having extra cash can lead to health-promoting spending, even if it does not involve direct health care–related expenditure. Indeed, states investing more in social services and public health than in health care have better outcomes for many health conditions.⁹  Moreover, increased income is independently associated with increased life expectancy.¹⁰ 

Researchers hypothesize that pathways connecting cash transfers and increased income to better health run through enhanced access to material goods and decreased stress alongside the possibility of preventive health care spending.^2,6  For example, one study found that children in low-income families receiving a discounted rate (a conditional cash transfer) on utilities (a material good) are at lower risk of malnutrition (an important health outcome).¹¹  Similarly, women receiving prenatal cash benefits report that this increased income decreases stress and increases empowerment.⁵  This then benefits their children given that children exposed peripartum to elevated maternal cortisol levels, depression, and anxiety have worse health outcomes.^6,12  Findings on direct connections between cash transfers and health care spending are mixed. Some researchers found that increased cash shifted insurance coverage from public to private,⁶  potentially influencing health care access. Others found inconsistent connections between cash transfers and use of prenatal care.^6,7  Chetty et al¹⁰  found that health care access alone could not explain geographic differences in life expectancy for low-income Americans.

The current economic recession created by COVID-19 amplifies the need for cash transfer policies as unemployment rates increase and families report rising rates of economic hardships. Given this evidence linking cash transfers to maternal-child health outcomes, we suggest that expansions to the EITC and the CTC proposed in the WFTRA and the HEROES Act represent important opportunities to implement evidence-based changes.^1,2  These proposals would increase the value of the EITC and CTC, partially mitigating harmful financial burdens families face. In turn, they could serve as a powerful adjuvant to healthy child development, promoting a more economically productive population. Specifically, the WFTRA would increase the EITC by ∼25% for families with children (maximum of $8038), while the HEROES Act would increase the EITC by 275% for filers without children only (maximum of $1487). Both would also expand the CTC.

Before discussing these changes, it is important to understand recent CTC changes. The 2017 Tax Cuts and Jobs Act (TCJA) increased the CTC to give parents a credit of $2000 per child (up to 2 children). This change had limited benefit for impoverished families. For the poorest families, the credit is not refundable (ie, families do not get a cash transfer if the credit’s value exceeds taxes owed). For those with slightly higher incomes, it is only partially refundable (ie, families are ineligible to receive its full value).

In Table 1, we distinguish between current law (TCJA) and the potential modifications under the WFTRA. To start, consider 2 single parents under the TCJA, each with 2 school-aged children. One works full-time at minimum wage ($14 500); she receives $75 more than before the TCJA ($1800 under the TCJA, $1725 pre-TCJA). The other is a pediatrician (median starting salary: $150 000 per the American Academy of Pediatrics Graduating Resident Survey, 1997–2016); she receives $4000 more than before the TCJA ($4000 under the TCJA, $0 pre-TCJA). Thus, under current policy, highly compensated families reap a greater benefit than low-income families. Legislation like the WFTRA would modify the TCJA and move incrementally toward equity. The WFTRA would ensure that very low-income families receive the full credit of $2000 per child. It would make the $2000 CTC fully refundable, meaning that all families, up to a maximum income of $150 000, would get the full cash value. Thus, both example families would now receive $4000. The legislation is even more generous for families with young children: those with children <6 years old would receive an additional $1000 per child ($3000 total per child). Although this change does not reach the NAM’s recommendation of a universal child allowance of $3000 per child <18 years, it would make substantial progress toward that goal.

The cost of increasing tax credits could be balanced by cost-savings on poverty-associated, preventable health conditions. Consider mood disorders, which disproportionately affect low-income women. One study found that postpartum depression rates were 2.5 times higher among those with income <$10 000 compared with those with income >$70 000, even after controlling for demographic variables.³  Mothers with such perinatal mood disorders have an increased risk of preterm birth, child developmental disorders, and more.¹²  Models estimate that potentially preventable perinatal mood disorders cost an extra $19 520 for the mother and $12 480 for the child.¹²  Data reveal an association between receiving EITC and both increased rates of maternal self-efficacy and decreased rates of depression.^6,8  This implies that increasing tax credits like the EITC could lead to cost-savings by preventing perinatal maternal mood disorders and their trickle-down effects on children.

Although we lack rigorous prospective trials evaluating the impact treating poverty has on such conditions, we hypothesize that mitigating poverty could prove a powerful, cost-effective prevention strategy. Researchers can strengthen the evidence-base by conducting rigorous studies of poverty-reducing interventions (eg, increased tax credits, cash as medicine) on outcomes such as postpartum depression, preterm birth, and child developmental disorders.

Most pediatricians care for families living with poverty. Just like their physicians, these families work hard to provide their children with a better future. They often work odd hours, under difficult conditions, and at a low-wage job or jobs just to support the well-being of their children. We could improve our patients’ health if we enhance the EITC and CTC. Although our clinical obligations are our primary duty, engaging in evidence-based advocacy, that is, supporting legislation poised to help our patients, can be an important, complementary professional task. We recommend engagement with policy improvements to tax credits, including sharing evidence with peers, speaking directly with congressional representatives and senators, and seeking multidisciplinary research collaborations to more fully understand the impact these policies have on both poverty alleviation and maternal-child health outcome improvement.