Poverty – Espacios Abiertos

Policy Report – Federal Contribution to Puerto Rico’s Earned Income Tax Credit Program: Progress, Challenges, and Opportunities

Cecille — Fri, 05 Apr 2024 04:24:35 +0000

Access Espacios Abiertos‘ most recent report/policy brief on Puerto Rico’s Earned Income Tax Credit authored by Daniel Santamaria Ots, Enrique Colón Bacó and José Zavala thru this link. Excerpt below.

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Aware of the great potential that an expanded EITC program could have on addressing Puerto Rico’s persistently high poverty rate and low labor force participation rate, in 2021 the federal government assigned up to $600 million in annual permanent supplemental funds to improve the local EITC program in Puerto Rico. In April 2021, Espacios Abiertos (EA), in collaboration with the Center on Budget and Policy Priorities (CBPP), provided concrete recommendations to the Legislature with the goal of restructuring the EITC10. The redesign of the new credit significantly increased the maximum credits, incorporated future annual inflation increases in the credit, and expanded the program’s eligibility categories.

For the first time, the new credit included families without dependents as full beneficiaries, along with young people between 19 and 26 years of age and self- employed workers. In the 2022 fiscal year, once the changes to the redesigned program were in place, approximately 648,000 families received the benefits of this local EITC with an average credit of $1,731. The local government invested some $486 million and the federal government provided approximately $633 million.

Given this background on the origin and development of the EITC program on the island, this report consists of four sections addressing several issues:

First, it will evaluate the main measures of the program’s impact: total credit, average credit, number of families requesting the credit, credit by personal status, credit by sex, credit by age, credit by number of dependents, credit by occupation, credit by highest source of income, credit by municipality, gross earned income of credit claimants, and credit participation rate;
Second, it will analyze the credit’s ability to increase economic security for families receiving the incentive, quantify those that manage to exceed the federal poverty threshold, and assess what we can conclude about the program’s impact on the island’s labor force participation rate.
Third, it will evaluate Puerto Rico’s access to federal funding for the EITC program and compare Puerto Rico’s local and federal funding of the EITC to that of the 50 U.S. states and Washington, D.C.; and
Finally, it will conclude with public policy recommendations.

Policy Report – Our Dollars and Their Data: a Look at the 2021 Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)

Cecille — Mon, 14 Nov 2022 18:00:02 +0000

Access the full report (English version) authored by Policy Analyst Wilmarí de Jesús Alvarez, through this link. View other links to related documents at the bottom of the page.

Excerpt from the Report: Recommendations

Accountability and monitoring of the return on investment

The Puerto Rico Department of the Treasury should use the methodology specified in ARPA and the requirements specified in Law No. 41 of 2021 to quantify and report on the amount the public coffers reimburse in EITC and thereby resolve the confusion caused by the lack of uniformity in indistinctly reporting the amount disbursed and amount claimed.
In order to ensure that any detail(s) in the next tax cycle can be rectified and, if necessary, amendment(s) may be made to the Puerto Rico income tax code with respect to the EITC, the local Treasury Department should publish an annual report on the impact of this measure before the close of the current legislative session or the beginning of the next tax cycle.
The figures still to be reported by the Department of the Treasury are essential for confirming whether there was an excess disbursement of one hundred percent of the amount budgeted by the government of Puerto Rico. If this was the case, there must unquestionably be modifications to the controls established by the Department. In addition, and from the most favorable angle, this situation could suggest that Puerto Rico has the ability to budget up to an additional $200 million for the EITC, that is, $400 million per year, to incentivize formal work and relieve the financial insecurity of thousand of working families who earn less than $42,000 per year.
Need to carry out a qualitative analysis, through public policy laboratories, collaborations with academia, and surveys of participants in the EITC, which will allow measurement of the effectiveness of the EITC in improving the poverty rate among families and increasing the labor participation rate.

Expansion of impact and improvement in efficiency

Ensure that every household that files a tax return with the Department of the Treasury and is eligible for one, the other, or both credits (EITC and CTC) but does not apply, be notified of its eligibility and that in the case of the EITC (since it is locally designed and implemented), that credit be accredited or reimbursed automatically.
Double the annual assignment of EITC moneys in the budget of Puerto Rico (to $400 million), with the federal government’s commitment to do the same (that is, assign up to $1.2 billion) in order to combat poverty, while at the same time incentivizing formal work and reducing the abysmal difference between the poverty rate in Puerto Rico and that rate in the poorest jurisdictions in the United States.
Evaluate mechanisms that will allow, in collaboration with the IRS and within the existing legal and judicial order, the processing of the CTC by the Department of the Treasury from now on, in order to ensure agile disbursement of the credit for the universe of households that now file with the local government, as well as other families eligible locally for that credit.

Policy Report – The New Earned Income Tax Credit and Its Impact on Poverty in Puerto Rico

Cecille — Wed, 01 Dec 2021 18:00:26 +0000

Espacios Abiertos estimates that around 125,000 people or 54,920 families or taxpayers units could cross the poverty line in Puerto Rico. These estimates are done by incorporating the parameters of the redesigned work credit (Earned Income Tax Credit, local EITC) to the filed returns for the tax year 2019.

EA’s policy brief “The New Earned Income Tax Credit and its Impact on Poverty in Puerto Rico”, indicates that the local EITC has the potential to help around 420,683 people (216,393 taxpayers units) increase their levels of economic security, since in addition to the 54,920 taxpayers who would cross the poverty line, another 161,473 taxpayers would have the possibility of being less poor in economic terms.

Although there is still a long way to go to encourage formal work with decent wages in Puerto Rico, the credit—coupled with the increase in the minimum wage—points in the right direction. Espacios Abiertos will continue to evaluate the effectiveness of the new credit for work with the purpose of providing empirical evidence on its real impact on the living conditions of thousands of Puerto Rican families.

The potential increase in the number of taxpayers who could benefit from the new credit is due to three factors: the inclusion of young people between 19 and 26 years old (76,426 taxpayers), the entry of self-employed workers (13,238 taxpayers) and the expansion of the taxpayer base by increasing the maximum income limit of applicants for the new credit according to the new law (121,885 taxpayers) who did not qualify in 2019.

If we apply the parameters of the new credit that will be in effect in 2022, to the returns that were filed in the 2019 tax year, 211,549 taxpayers (349,152 people) could receive the credit in addition to the 254,757 taxpayers (496,149 people) who qualified in 2019, impacting in total a potential 466,306 taxpayer units (845,301 people) in Puerto Rico.

Using the demographic and socioeconomic composition of the 2019 taxpayer units, the credit could average approximately $1,800 per taxpayer.

Access the full report and executive summary through the following links: