Puerto Rico expands Earned Income Tax Credit

Puerto Rico Gov. Pedro Pierluisi is expanding the Earned Income Tax Credit program for the island, which along with another expansion of a federal program, will likely aid the island’s economy, experts said.

The federal government will provide $612 million a year for 10 years for the expanded credit, if the local government continues to fund the program at roughly $200 million a year.

For the last year or two the local government has supported a limited EITC program with $200 million per year. As part of the American Rescue Plan Act, the federal government agreed to support an expansion of this program for 10 years.

The new benefit’s pay out to workers will depend on the workers’ income and dependents. For example, a single taxpayer earning $21,000 to $40,000 a year would have a maximum credit of $6,500 a year, according to the governor’s office.

Pierluisi signed the bill for the expansion Sunday and said more than 500,000 families on the island would benefit from the incentive.

“The new expanded EITC, together with the expansion of the Child Tax Credit to parity with the U.S., would definitely improve labor participation,” said Advantage Business Consulting President Vicente Feliciano. “Moreover, no one working full time in Puerto Rico would be poor, according to the Federal Poverty Guidelines.”

Pierluisi also announced that the American Rescue Plan Act permanently raises federal funding for federal dependent children’s credits to state-side levels. It also expands eligibility for it in Puerto Rico from those with three children to those with one or more children.

The fiscal plan the Puerto Rico Oversight Board approved this spring had anticipated the expansion of the EITC and child tax credit programs with federal help. Both the expansion of the EITC program and the permanent expansion of the Child Tax Credit eligibility “are projected to have permanent effects on income and growth, and the EITC expansion is expected to support timely realization of the human capital and Welfare Structural reform benefits,” the board said.

Interamerican University Associate Prof. Antonio Fernós Sagebien said, “It will always be good news [for] hard-working tax-abiding people to get some deserved return on investment from a disorganized and complex fiscal system. [The EITC] is supposed to be aimed and skewed to low wage individuals [who] will get most of the credit and that might have a multiplier effect so consumption should get a boost and this is very good news for those in the retail industry.”

Puerto Rico opinion writer and former government official Armando Valdés Prieto said, “The extension of the EITC to Puerto Rico has great potential to reshape the labor market on the island… The truth is many beneficiaries of these federal [social safety net] programs work informally and so are invisible both to economists and tax collectors. In order for the EITC to increase labor participation, the focus will have to be on convincing informal workers of the benefits of legitimizing and formalizing their current work arrangements.”