This is your brain on tax credits

Ben Horowitz
Aug 27, 2015

Minnesota policymakers can push back on one of poverty’s most pernicious impacts on children. New medical research shows that poverty can delay the development of cognitive abilities in children. Meanwhile, new economic research shows that the Earned Income Tax Credit (EITC) increases families’ income even more effectively than previously thought. The Working Family Tax Credit is Minnesota’s own take on the EITC. You don’t need to be a neurosurgeon to connect the dots — a stronger Working Family Credit won’t just help families economically, it will likely improve the brain development of Minnesota children.

In a new paper, researchers describe how a series of MRI scans revealed a gap in brain development between poor kids and their higher-income peers. This is the second study I’ve seen this year to suggest a relationship between poverty and brain development. The scientists behind these studies make two important observations that policymakers should note. First, the gaps in brain development are not irreversible; the brain can make up for these losses later in childhood. Second, we have tools at our disposal to make sure more families can escape poverty.

One such tool is the EITC, and another new study reveals that the EITC is an even more powerful poverty-fighting tool than previously thought. The EITC reduces poverty directly by increasing families’ income, and it is also structured to encourage work.

In the new paper, economists describe their model that captures the effect of all the ways that the EITC decreases the number of families living below the federal poverty line. We already knew that about 6.2 million people’s incomes rise above the poverty level due to the EITC’s direct impact on their income. This new research shows that even this high number likely underestimates the total number of people the EITC lifts above the poverty line by “as much as 50 percent.”

The Working Family Credit is Minnesota’s own version of the EITC. Governor Mark Dayton proposed an expansion of the credit last session that would have built on the Working Family Credit’s success. Dayton’s proposal would expand the credit to 30,000 more families and increase the credit for 280,000 households who currently receive it. That means more lower-income working families would see a boost in their incomes and more Minnesota children would get off to a strong start.

We now have even more evidence that poverty is harming Minnesota’s kids. Expanding the Working Family Credit in 2016 should be a no-brainer.

-Ben Horowitz