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Puerto Rico’s Ineligibility For Child Tax Credit Will Hurt Economy

Credit would provide estimated $2.2 billion over 10 years


July 8, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico’s proposed ineligibility for the federal Child Tax Credit not only will strip local families of a tax break but also will hinder the island’s economic development, said Jeffrey Farrow, former chairman of the White House Interagency Working Group on Puerto Rico.

In an effort to reduce the paperwork needed to apply for the tax credit, the U.S. Congress has proposed eliminating an alternative formula used to calculate the credit based on Social Security tax payments. Since Puerto Rico residents don’t pay federal income tax, only Social Security and Medicare taxes, the measure would end up depriving local families with three children or more of the tax credit.

Farrow said the proposal couldn’t have been inadvertent because the implications for locals were clearly spelled out in an analysis by the Joint Committee on Taxation. "They very clearly understood that the primary impact was to take Puerto Rico out of the proposal," he said.

Also, the projected savings from cutting down on the paperwork could have been calculated only if based on the number of people who would no longer qualify for the tax credit. So, the authors of the measure must have known locals would be eliminated from the program, he said.

Farrow said Puerto Rico’s ineligibility for the tax credit would cost local families $1.7 billion to $2.2 billion over 10 years, according to estimates by the Department of the Treasury and the Joint Committee on Taxation, respectively.

"The credit is significant not only to low-income workers but to businesses as well. It alleviates wage pressure, since it gives low-income workers less reason to push for higher wages," said Farrow.

By helping to keep wages down, the credit also makes Puerto Rico more attractive to off-island businesses. "It helps make Puerto Rico more competitive," said Farrow.

Only 35,000 of the estimated 100,000 local families eligible for the tax credit have taken advantage of it, said Farrow, in part because the Puerto Rico government hasn’t done a good job of informing the public of its rights. The Calderon administration’s apparent lack of interest in the program may be linked to the Popular Democratic Party’s ideological position that Puerto Rico enjoys fiscal autonomy from the U.S. The tax credit puts that position in doubt since families must submit a federal tax return to apply for the credit, said Farrow.

Gov. Calderon told reporters she doesn’t think the measure will pass Congress. Farrow said he was puzzled by the proposal given that in an election year, Hispanics in general and Puerto Ricans in particular, especially those in Florida, could prove a decisive voting bloc. Some 135,000 Puerto Ricans resided in Florida in 2000, when President George W. Bush won the state by a mere 567 votes.

This Caribbean Business article appears courtesy of Casiano Communications.
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