New Report Encourages Policymakers to Consider Additional Federal Support for Puerto Rico’s EITC

By: Juan Tirado

A new report from the Center on Budget and Policy Priorities highlights how an increase in federal support for Puerto Rico’s Earned Income Tax Credit (EITC) would help in overcoming deep poverty and chronically low labor participation in the Commonwealth.

The report, “Why the Federal Government Should Support Puerto Rico’s New EITC”, states that utilizing powerful tools such as the EITC can help address challenges like chronically high poverty, low labor force participation, more than a decade of economic decline, an unsustainably high debt burden, and the lingering effects of hurricane Maria in Puerto Rico.  According to the report, the federal EITC has been proven to positively affect these issues – in 2018 it lifted 5.3 million people out of poverty and lifted another 17.6 million people closer to the poverty line.

Puerto Rico has already created its own EITC, which took effect this year. The new EITC will cost an estimated $204 million per year and provide a maximum credit of between $300 and $2,000. This credit is still too modest and did not do enough to incentivize formal employment – according to the 2019 fiscal plan for Puerto Rico that was certified by the Financial Oversight and Management Board. The maximum annual credit for a single parent with two children in Puerto Rico is $1,500, compared to $5,828 for the federal EITC. Puerto Rico’s workers aren’t eligible for the federal EITC because they don’t pay federal income taxes, but they do pay federal payroll taxes, which the federal EITC was created in part to offset.

The report urges policymakers to consider proposals in Congress to provide about $600 million per year to enable the Commonwealth to expand its new EITC, which would increase it from $200 million to $800 million. A $600 million federal investment in Puerto Rico’s EITC would still be far less than the nearly $1.1 billion that Mississippi workers claimed in 2016 EITC dollars, even though both Puerto Rico and Mississippi have a population of about 3 million people and Puerto Rico’s median income is less than half of Mississippi’s.