Study: Positive impacts of changes to work & child tax credits are real but fall short
By The Star Staff
An analysis by the pro-transparency organization Open Spaces (EA) concluded that although changes to the local earned income tax credit (EITC) and child tax credit (CTC) this year have had a positive impact on the pockets of more than 515,000 and 223,000 families, respectively, more needs to be done.
The study found that more significant measures are required to effectively combat economic insecurity and sustainably increase labor participation in the formal labor market.
The senior analyst of public policy and research director at EA, Daniel Santamaría Ots, said the study was based on information from 4 million individual tax returns, which allowed the evaluation of 20 variables of each tax unit for the past three years. The EA report places greater emphasis on the EITC, a program that has proven to dramatically impact poverty in the United States (by annually helping more than 5.6 million people to exceed the poverty line and to improve economic security for another 16.5 million).
Santamaría Ots recommended that the federal EITC contribution to Puerto Rico should be equal to the average per capita distribution of the states and that the CTC should be transferred from the Internal Revenue Service to the Puerto Rico Treasury Department to allow families to receive the credit.
“Our analysis shows that progress has been made, although the amount of federal funds invested in EITC is still insufficient to combat economic insecurity and increase the labor participation rate in Puerto Rico,” Santamaría Ots said. “Additionally, many people are not receiving the CTC in Puerto Rico when they could have received it since early April. The most vulnerable families need the money in their pocket as soon as possible.”
“The learning in both programs shows us that immediate adjustments are required,” the economist added. “The effect of both programs on reducing the poverty rate has been significant. However, Puerto Rico, the poorest jurisdiction in the United States, has a long way to go. Urgent action is needed if we want the effects to be sustainable and continuous in time.”
The Open Spaces team estimated that for the 2021 payroll, 44,999 contributory units (99,272 people) exceeded the poverty line by receiving the EITC. That figure represents a reduction in the poverty rate of some 3.1 percent from 40.5% to 37.44%.
“The economic insecurity in which more than a million and a half people live in Puerto Rico requires forceful action. The reincorporation of the work credit in the 2018 tax reform was a step in that direction. The redesign of local credit from the ARPA law was another,” said Cecille Blondet, executive director of Open Spaces. “The Open Spaces analysis shows that there is room for action at the local level to avoid losing the ground gained against poverty during 2021. The information that EA obtained from the tax returns for the years 2019, 2020 and 2021 allowed for an accurate analysis. It turned estimates into accurate data and robust evidence to support public policy decisions.”
Blondet, at the same time, denounced what she said was resistance on the part of the Treasury Department to divulge information requested by the organization that prevents a rendering of accounts regarding the disbursement of public funds assigned for credit for work. The request for information has been the subject of a lawsuit filed against the Treasury.