The New York Noncustodial Parent EITC: Its Impact on Child Support Payments and Employment

The New York Noncustodial Parent EITC: Its Impact on Child Support Payments and Employment Austin Nichols, Elaine Sorensen, and Kye Lippold The Urban Institute June 27, 2012 Support for this research was provided by the Federal Office of Child Support Enforcement under grant number 90FI0096 and by the Smith Richardson Foundation under grant number 2009-8692. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the New York Office of Temporary and Disability Assistance, the New York Department of Taxation and Finance, the Urban Institute, its trustees, or its funders. The authors thank the New York Office of Temporary and Disability Assistance for providing the data used in this paper and for providing useful comments on earlier drafts. i Table of Contents Executive Summary .......................................................................................................... iii I. Introduction .................................................................................................................... 1 II. Policy Intervention ....................................................................................................... 2 A. The Federal EITC .............................................................................................................................. 2 B. The New York State EITC ................................................................................................................ 2 C. The Noncustodial Parent EITC ....................................................................................................... 3 III. Potential Incentive Effect of the Noncustodial Parent EITC.................................. 5 IV. Study Findings ............................................................................................................. 6 A. Trends in Eligibility, Receipt, and Average Benefit ...................................................................... 6 B. Profiles of Noncustodial Parents ..................................................................................................... 8 C. Regression Results ........................................................................................................................ 13 V. Conclusions .................................................................................................................. 19 VI. References .................................................................................................................. 21 VII. Appendices ............................................................................................................... 22 A. Methodology Used to Produce the Regression Results ............................................................ 22 B. Data Used in the Report ................................................................................................................. 24 C. Appendix Tables .............................................................................................................................. 27 ii List of Figures and Tables FIGURES Figure 1. Value of the NCP EITC and the NYS EITC for Single Filers, 2009 .................. 4 Figure 2. Proportion of Noncustodial Parents who Paid their Child Support in Full by Age of Youngest Child, All Orders, 2007–09 .............................................. 13 TABLES Table 1. Noncustodial Parents Eligible For and Receiving the NCP EITC, 2006–09 ........ 7 Table 2. Demographic Characteristics of Specific Groups of Noncustodial Parents in New York, 2009 ............................................................................................. 10 Table 3.Economic Characteristics of Specific Groups of Noncustodial Parents in New York, 2009 ............................................................................................. 11 Table 4. Estimated Discontinuity in the Proportion Paying in Full at Age 18 by Year .... 14 Table 5. Estimated Discontinuity in the Proportion Paying in Full, the Proportion Eligible for a Net Benefit from the NCP EITC, the Amount of the Net Benefit, and Their Associated Local Wald Estimators ...................................... 16 Table 6. Estimated Discontinuities for the Amount of Child Support Paid and Whether Noncustodial Parents Earned More than $3,000 a Year .............. 17 Table 7. Estimated Discontinuities for Three Outcome Variables, Ordered Amount Less than $3,000 a Year ....................................................................... 17 Table 8. Local Wald Estimators (LWE) for Three Outcome Variables, Ordered Amount Less than $3,000 a Year ....................................................................... 18 iii Executive Summary In 2006, New York instituted a new earned income tax credit (EITC) for low-income noncustodial parents to encourage them to work and