Tag Archives: EITC

The Health Benefits of the Earned Income Tax Credit

Believe it or not, the Earned Income Tax Credit (EITC) does more than help low income families get involved in the economy.  A new study by the Federal Reserve Bank of Chicago finds that the EITC helps low income families to eat healthier.  (WSJ: Households Spend More on Healthy Foods When They Get Earned Income Tax Credit)

Unlike food stamps, the EITC is paid out as a lump sum payment, which takes advantage of the wealth effect.  Low income families, feeling richer after receiving a large cash payment, alter their spending habits and choose to purchase more healthy foods such as fish, eggs, and dairy products, and consume less unhealthy foods such as sugary beverages.  Given that obesity rates are significantly higher in low-income families (because unhealthy foods is typically much less expensive than healthy food), the EITC is helping to fight a rising economic concern in the United States.

According to Forbes, in 2012 obesity passed up smoking as the most expensive health issue in the United States, increasing annual national healthcare bills by over $190 billion a year!  Indeed, the average obese male has health care bills costing nearly $1,200 more each year compared to non-obese males.  For the average obese female, this cost is an additional $3,600 per year!  (Forbes: Obesity Now Costs Americans More in HealthCare Costs than Smoking).  Furthermore, given that obesity is most common in low-income families that will now have a significant portion of their health care costs paid by the government (via The Affordable Care Act), much of the cost of obesity will be passed on to the Federal Government, contributing to this country’s already growing debt problem.

By encouraging healthy behavior, the EITC is helping to drive down healthcare costs that are indirectly paid for by taxpayers.  Obesity has grown 34% since the 1960s, and this growth has made obesity is an issue that we literally cannot afford to ignore.  Additionally, the impact that the EITC has on food spending illuminates another important issue in the United States: the price disparity between healthy and unhealthy food.  It is unfortunate when a double-bacon cheeseburger costs $3 and a salad costs $10.  By the substitution effect, this type of pricing obviously encourages less healthy eating.  I think it is important for us to address the horrifying price gap between healthy and unhealthy foods, and I think a good place to start is farm subsidies.  I have already written about the impacts of farm subsidies on the market for high fructose corn syrup (https://econ411w14.lsa.umich.edu/why-farm-subsidies-are-stupid/), and as you pointed out with your comments, tariffs and trade barriers are likely another way that we can confront this price gap.  However we address this price gap, it is important that we do so soon, as rising obesity rates are not only saddening, but grossly expensive as well.