Money Matters! Why SB13-001 is so important for Colorado.
Does money matter? Yes! Especially to young kids. Researchers are finding that young children (0-5) are particularly sensitive to their environments. Poverty early in a child’s life has far reaching effects on their educational achievement, long-term health and lifetime earnings.
But small boosts in income, like those provided by the working families opportunity act, provide big bang for the buck.
Elementary education
A 2004 study found that for preschool children, a $1,000 increase in annual income showed a demonstrable boost in child achievement equal to a 1 point increase on an IQ-type scale, between 6-50 points on a SAT-type scale or 6 more correct answers on a 61-question test regarding colors, letters, numbers, comparisons and shapes.
That study showed increases as little as $800 for low-income families with young children translated into increases in academic achievement.
The study went on to find that the boost from tax credit income was equal to or greater than the boost gained from much more expensive policy options, like intensive early childhood education interventions ranging in cost from $15,000 to $40,000.
Morris, Pamela, Greg J. Duncan and Christopher Rodrigues. “Does Money Really Matter? Estimating Impacts of Family Income on Children’s Achievement with Data from Random-Assignment Experiments,” Working Papers, Institute for Policy Research Northwestern University, February 12, 2004. Read the report.
A 2012 study in the American Economic Review found that a $1,000 increase in earnings through an earned income tax credit resulted in better performance on math and reading tests. Test gains were greatest for the most disadvantaged kids.
Dahl, Gordon B., and Lance Lochner. 2012. “The Impact of Family Income on Child Achievement: Evidence from
the Earned Income Tax Credit.” American Economic Review, 102(5): 1927-56. Read the report.
Lifetime earnings
Adding just $3,000 in tax credit income to a working poor family with a child under age 6 enabled that child to work 135 hours more per year as an adult and earn on average17 percent more than children whose families didn’t receive that income boost.
Duncan, Greg J., Kathleen Ziol-Guest and Ariel Kalil. “Early Childhood Poverty and Adult Attainment, Behavior and Health,” Child Development, January/February 2010, pp. 306-325.
College and quality of life
A 2011 study by researchers at Harvard and Columbia for the National Bureau of Economic Research found that raising family income by $1,000 through tax credits like the EITC and CTC, raised student test scores (by 6 percent of a standard deviation) and in turn increased students’ probability of going to college, earning more wages as adults, reducing teenage birth rates and improving the quality of the neighborhood in which those students live as adults.
That’s a big effect. This and other studies have shown that teacher quality impacts student achievement by 10 percent of a standard deviation.
This study used the federal EITC for identification, but specifically found that the findings applied equally to state ETIC programs.
Chetty, Raj, John N. Freidman and Jonah Rockoff. “New Evidence on the Long-Term Impacts of Tax Credits
(EITC/CTC),” Internal Revenue Service Publications, November 2011. Read the report.
Why now?
Timing is everything. These studies and more like them confirm that small increases in family income are inexpensive and effective when children are under 6 years old. The effectiveness diminishes as children get older, requiring that policy solutions become more targeted and more expensive. As one researcher said, “If we are hoping that giving parents extra income will bolster their children’s chances for success, early childhood is the time to do it.”
Greg J. Duncan and Katherine Magnuson. “The Long Reach of Childhood Poverty.” Pathways Magazine, Stanford Center on Poverty and Inequality, Winter 2011, pp. 23-27. Read the report.
A responsible way to secure future revenue stability
Boosting earning power of future workers ensures future revenue stability. Alexander Gelber of the Wharton Business School and Matthew Weinzierl of the Harvard Business School found in a 2012 study that the tax system would raise revenue more effectively if policymakers helped children in working families climb the economic ladder through expanding the federal EITC.
Gelber, Alexander M. and Matthew C. Weinzierl. “Equalizing Outcomes vs. Equalizing Opportunities: Optimal Taxation when Children’s Abilities Depend on Parents’ Resources” NBER Working Paper No. 18332, August 2012. Read the report.
The study by Chetty, Freidman and Rockoff also found that the increase to lifetime earnings offset a substantial portion of the cost of the EITC. These credits are smart, effective and efficient investments in our future.
For more information contact Kathy White, 720-252-9607, white@coloradofiscal.org
