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US Study Finds Correlation Between Tax And Timing Of Births

by Leroy Baker, Tax-News.com, New York

16 August 2013


The National Bureau of Economic Research (NBER) has issued a working paper presenting new evidence linking the timing of childbirth around the New Year to gain United States tax benefits.

Because child-related tax benefits are not pro-rated, the NBER has found that parents have selectively moved their child's birthdate, from early January into late December, to collect another year of the earned income tax credit (EITC) or the child tax credit.

The paper uses data from the universe of tax returns filed between 2001 and 2010 to test whether taxpaying parents are shifting the timing of childbirth, through induction or cesarean delivery. The NBER found evidence of a positive, but very small, effect of an additional USD1,000 in per-child tax benefits on birth timing.

The tax incentives increase the probability of a late-December birth by only about 1 percent, but it is suggested that "the response to tax incentives is small in part because of confusion about eligibility and delays in the issuance of Social Security Numbers for newborns, as well as a lack of control over medical procedures on the part of filers."

In addition, the NBER also documented a shifting of reported self-employment income in response to variation in incentives from the EITC due to childbirth. It is estimated that "this reporting response reduces federal revenue by hundreds of millions of dollars per year."

The NBER’s findings are similar to those found by the University of California's Department of Economics in March 2011, which used data on all births in the US from 1990 to 2000, and found that the increase in child tax benefits led to a 1.6 percent increase in the percentage of births that occur in December relative to January.

However, California University also indicated that this type of medical intervention has consequences for infant health: "tax benefit induced c-sections are associated with a higher probability that the infant will be low birth weight." Thus, it is suggested, small changes in the timing of birth may have significant, and potentially costly, long-term consequences, particularly in terms of education and health services.

TAGS: individuals | tax | tax incentives | public health | self-employment | United States | tax breaks | individual income tax

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