• The San Juan Daily Star

Open Spaces: Earned income tax credit could get thousands out of poverty


Economist Daniel Santamaría Ots

By The Star Staff


About 125,000 people, or 54,920 families or taxpayers, could get out of poverty in Puerto Rico by incorporating the parameters of the new local Earned Income Credit (EITC) in the income tax returns analysis filed for taxable year 2019, said economist Daniel Santamaría Ots, senior public policy analyst at Espacios Abiertos (Open Spaces).


“The Credit for work is an incentive for formal work. That it has the potential and capacity to lift nearly 55,000 families or 125,000 people above the poverty line,” Santamaría Ots said at a press conference. “Although there is still a long way to go to encourage formal work with decent wages in Puerto Rico, the credit — along with the increase in the minimum wage — points in the right direction.”


“From Open Spaces, we will continue to evaluate the effectiveness of the new credit for work to provide empirical evidence on its real impact on the living conditions of thousands of Puerto Rican families,” he added.


In the Espacios Abiertos study “The New Credit for Work and Its Impact on Poverty in Puerto Rico,” it was estimated that the local EITC could allow 420,683 people (216,393 tax units) to increase their levels of economic security. Of 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.


The economist made the estimates by incorporating the parameters of the new credit for work, which will take effect in 2022, to the approximately one million forms filed in 2019 that were requested by Open Spaces from the island Treasury Department last April. With this information, an analysis was made of the impact of the previous credit for work in 2019 and the potential impact on the poverty thresholds was analyzed with the parameters of the new credit that comes into force in 2022. This week, data was requested from the Treasury Department from taxable year 2020 to continue analyzing all the effects of the new credit.


Santamaría Ots noted that the increase in the number of taxpayers that could benefit from the new credit is due to three factors: the entry 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.


In other words, “if we apply the parameters of the new credit that will take effect in 2022 to the returns that were filed in taxable year 2019, some 211,549 taxpayers (349,152 people) could receive the benefit of the credit in addition to the 254,757 taxpayers (496,149 people) who qualified in 2019, impacting a total potential of 466,306 tax units (845,301 people) in Puerto Rico,” the economist said.


The new average work credit would be around $1,800 per taxpayer if the demographic and socioeconomic composition of the 2019 tax units is maintained, he said.


An X-ray for taxable year 2019 showed that 13,937 people or 6,230 taxable units (families) managed to cross the poverty line upon receiving the credit, which averaged $450. That year, 87.67 percent of the tax units that received the work credit had incomes of less than $20,000 and 76.88 percent worked in the private sector.


In addition, 54.89 percent of the taxpayers who received the credit did not have dependents and 48.8 percent fluctuated between the ages of 31 and 45 years. Nearly 50 (49.72) percent of the taxpayers who received the credit for work were identified with the female sex (average credit of $468) and 49.74 percent with the male (average credit of $433).


The economist indicated that for the study, 1,612,681 observations and 22 variables extracted, directly or indirectly, from a total of about one million individual income tax returns filed in taxable year 2019 were analyzed. Of that total number of returns filed, 837,056 payroll reports reported income above zero.


The fields analyzed for each and every one of the observations included 22 variables: 13 variables extracted by the Treasury Department directly from the individual income tax returns for taxable year 2019, and nine variables formulated by Espacios Abiertos from the original variables extracted directly from the income tax returns of individuals for taxable year 2019.