In a country like ours, where 44% of the population lives below the poverty level and labor participation stands at around 40%, programs such as credit for work or "Earned Income Tax Credit" (EITC) deserve to be strengthened, because They have proven effective in reducing poverty. In addition, studies show that the EITC has a broad impact that extends to all stages of the lives of individuals and families that at some point benefit from it. Every time it improves child and maternal health, it improves the school performance of boys and girls, it portends a greater probability of acceptance at the university level and represents better future income, as well as more benefits and income in retirement.
Puerto Rico had a credit for work that was approved in 2006 and was in effect from 2007 to 2013. Unfortunately, in 2014 legislation was passed to eliminate the credit, instead of improving it. Then, with the Tax Reform of 2018, a new credit for work was reestablished. The maximum amount of the credit was also increased from $450 to $2,000 per year and its design was improved. This new credit came into effect with the 2019 tax return and it was projected that it could benefit over 400,000 people annually, while encouraging formal work and increasing labor participation.
Since 2019, Puerto Rico has allocated $204 million annually in the general budget to offer relief to low- and moderate-income workers in the form of a work credit or “EITC.” According to the data published so far by the Department of the Treasury, the credit for work claimed in the 2019 return benefited some 258,757 people and totaled $115.2 million, leaving $88.8 million unused in the budget. Of the beneficiaries, 54.1% or 140,053 people who claimed the credit, their tax liability was zero. The remaining group (118,704 taxpayers or 45.9% of the beneficiaries), had a positive balance in the computation of their tax liability, which totaled $27.7 million. That group claimed $41.3 million or 35.8% of the total, while those with zero liability claimed $77 million (64.2%). A total of 73,961 people who claimed the benefit entered the contributory system as new.
Why did the program fall short? What adjustments should be made in the current credit design to maximize its reach? Who should be improved or included? How many people who qualified for the current credit did not claim it and why? How many people claimed the maximum credit? In what industries do the beneficiaries work? How many of the beneficiaries are female heads of household? How to apply the experience of other jurisdictions with the EITC to the needs of Puerto Rico?
These questions are part of the reflection that we have to do in terms of public policy and the use of public funds.
With the approval of the American Rescue Plan Act (ARPA) the amount of credit for work could be multiplied by four and a person who qualifies for the maximum of $2,000 per year per credit could potentially receive up to an additional $6,000. However, the matching opportunity extended by the federal government to expand the local EITC requires Puerto Rico to spend the $204 million budgeted for the federal government to begin reimbursing the expanded program.
To maximize the credit for work, it is necessary to start by reviewing and redesigning the local EITC and working on an orientation campaign to ensure that people who qualify receive their credit. There is no need to wait for the next taxable year, the relief is needed now, the money is there, and the changes can be made now and be extended to the 2020 return.
It is urgent to take action by both the Executive and the Legislative Assembly.
Open Spaces developed a calculator that allows users to know the current credit. Visited creditoportrabajo.com
This column was Originally posted on El Nuevo Día the 1 of April of 2021.