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US Administration Pushes For Puerto Rican Tax Credits

by Leroy Baker, Tax-News.com, Washington

15 November 2016


On November 11, during remarks before the National Tax Association Antonio Weiss, Counselor to the US Treasury Secretary, stated that expanding Puerto Rican eligibility for the earned income tax credit (EITC) and the child tax credit (CTC) should be part of the solution to rebuild the island's economy.

Weiss said that it is necessary to restore economic growth to Puerto Rico as part of the resolution of its severe fiscal crisis and increasing poverty. He noted that "the Obama Administration released a legislative roadmap in October 2015 designed to give lawmakers a path forward, … [including] a path to economic growth through enactment of federal measures such as the EITC, to incentivize workforce participation to revitalize the economy."

"Puerto Rico has a unique tax system," he noted. "Most Puerto Rican residents do not pay federal income taxes on locally earned income. However, Puerto Rican earnings are subject to federal payroll taxes and local income taxes comparable to federal rates. Puerto Ricans can also file a federal income tax return to be eligible for the refundable portion of the CTC, but only if they have three or more children."

"The EITC is a tax credit available to workers in low-income families in the states – but not the territories," he added. "The credit is refundable. Eligibility for, and the size of, the EITC is based on income, age, residence, and the presence of qualifying children. Expanding EITC would be particularly powerful in Puerto Rico because of its low labor force participation rates, 23 percent below that on the mainland."

Weiss confirmed that the Administration has estimated that "adopting a locally-administered EITC consistent with the President's budget proposal would pull 54,000 Puerto Ricans out of poverty and increase Puerto Rico's gross national product by over USD1bn. The EITC would likely also increase tax compliance and tax revenues, improving Puerto Rico's fiscal position."

He also confirmed that "expanding eligibility of the CTC would supplement this effort. Extending the credit to all families would improve the lives of roughly 650,000 additional families."

However, previous proposals to extend the EITC and CTC into Puerto Rico were criticized by the Republican Party in the US Congress, and the Puerto Rico Oversight, Management, and Economic Stability Act was passed in in June this year without tax measures.

For example, Senate Finance Committee Chairman Orrin Hatch (R – Utah) called the idea of extending eligibility for federal tax credits to the island as "problematic for a number of reasons." He pointed out that "offering these refundable tax credits … would ultimately be cash payments offered directly to lower-income residents of Puerto Rico."

TAGS: individuals | compliance | Finance | tax | tax compliance | law | tax credits | legislation | Puerto Rico | United States | Tax

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