Absence of EITC Impacts the Minimum Wage in Puerto Rico

In his recent State of the Union address, President Obama called for an increase in the minimum wage. If the minimum wage is brought to $9.00, as proposed, how will Puerto Rico be affected?

Although most federal laws apply to Puerto Rico, Congress has discretion to treat the islands, as a territory, differently than the States, the District of Columbia, and other territories.  This is latitude that the U.S. government does not have with respect to individual States but has sometimes exercised in the case of Puerto Rico – often to the detriment of most Puerto Ricans.

The minimum wage is one of the many laws that have been extended to the territory after consideration of its circumstances, increasing the earnings of many Puerto Ricans.

Other Federal laws aimed at ‘making work pay’ for low-income workers, enabling them to climb out of poverty, have not been extended to Puerto Rico or have only been extended partially.  In particular, these are the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).  These tax credits are refundable, meaning that workers can receive full payments even if the amount they are owed exceeds their Federal tax liability.

The EITC and CTC are partially based on Social Security taxes, which Puerto Ricans pay.  The EITC has not been extended to Puerto Rico and the CTC has only been extended in the case of workers with three or more children (whereas workers with any number of children qualify in the States and the District of Columbia).

Robert Greenstein of the Center on Budget and Policy Priorities compares the minimum wage with the EITC, noting that many commentators have presented the issue as a decision between these two options. In fact, he says, “both a more adequate minimum wage and strong refundable tax credits are necessary to ‘make work pay.’”

The Puerto Rican political party that wants a new “Commonwealth” political status opposed the extension of the minimum wage to Puerto Rico and has proposed that the islands be granted the authority to nullify Federal application of Federal laws, sometimes citing Federal labor laws as an area for nullification.  But party leaders have accepted President Obama’s minimum wage increase proposal.

Puerto Rico’s status as a territory has created a situation in which employers must adhere to the federal minimum wage but workers do not receive the positive effects of the EITC and, in many cases, the CTC.  For many of our fellow Americans in Puerto Rico, the amount of the minimum wage may be less important than enabling low-skilled workers in Puerto Rico to have the same opportunities to rise out of poverty and to live as decently as their fellow citizens living in the States.

As a candidate, the President pledged to work for the equal treatment of low-income Puerto Ricans in the EITC and the CTC.  The President’s Task Force on Puerto Rico’s Status pledged in 2011 to act to extend CTC benefits to low-income Puerto Ricans with one child or two.  But no proposals have yet been made to Congress by the Obama Administration.

 

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