Two Obama Tax Proposals Would Aid Puerto Ricans; Others Wouldn’t

President Obama plans to ask the Congress to expand the benefits of two Federal income tax programs that give money to Puerto Ricans, according to a document released by his news office Saturday night.

He will also propose other tax program benefit expansions, the paper revealed. But these would presumably not help Puerto Ricans because of the territory’s current treatment under Federal tax laws.

Presidential aides released the news in connection with the President’s State of the Union address Tuesday night.

The proposals are to be included in Obama’s budget for Federal Fiscal Year 2016, which begins October 1st. The budget is scheduled to be sent to the Congress February 2nd.

Hundreds of millions of dollars a year go to hundreds of thousands of Puerto Ricans under the two programs for which Puerto Ricans are eligible.

Puerto Ricans would receive hundreds of millions of dollars a year more under the two programs and hundreds of thousands more Puerto Ricans would benefit if the territory becomes a State. The programs only partially apply to Puerto Ricans because Puerto Rico is an unincorporated territory.

College Costs Aid

One of the two programs that partially benefit Puerto Ricans cuts Federal income taxes for middle and low-income families to offset post-secondary education costs up to $2,500 a year.

The American Opportunity Tax Credit also gives families up to $1,000 a year to the extent that they do not owe income taxes. It is this portion of the program that benefits Puerto Ricans due to an initiative of then Governor Luis Fortuno (R-statehood) and Resident Commissioner Pedro Pierluisi (D-statehood).

Obama plans to ask the Congress to increase the amount given families to the extent that they do not owe income taxes to $1,500.

He will also ask that part-time post-secondary education qualify for the benefits. Costs for part-time attendance could be offset to the extent of $1,500 in credits against income taxes or $750 to the extent that there is not an income tax liability.

The assistance would be given for five years of post-secondary education.

Aid for Families

The other program that partially benefits Puerto Ricans now is the Child Tax Credit.

The program cuts the Federal income taxes of working parents up to $1,000 per child. In the States, workers can receive the benefit through a check from the Federal government to the extent that they do not owe Federal income taxes.

In Puerto Rico, workers with three or more children can receive the checks due to legislation that expanded the benefits nationwide for workers with three or more children proposed by President Bill Clinton. Puerto Ricans with one child or two receive no benefits.

While a U.S. senator, Hillary Clinton proposed legislation to extent the program to low-income workers in the territory with one child or two. She reiterated the proposal during her 2008 presidential campaign.

Obama later accepted the proposal. In 2011, his Task Force on Puerto Rico’s Status recommended that his Administration act on it. But the Obama Administration has not asked the Congress to enact it.

Expansions of the program such as the benefits for three or more children are authorized through 2017. Obama will ask the Congress to make these benefits permanent.

Benefits Puerto Ricans Wouldn’t Get

Among the tax benefits that Obama is to propose that presumably will not be extended to Puerto Ricans are the following.

  • A doubling of the Earned Income Tax Credit (EITC) for workers without children, and an increase in the income level at which the benefit phases out. The Child Tax Credit builds on the Earned Income Tax Credit, which can also be provided through a check to the extent that there is not an income tax liability. As a candidate, Obama pledged to also extend the EITC to low-income Puerto Ricans, but he has not tried to as President. The Government of Puerto Rico had its own earned income tax credit program but it only provided a fraction of the Federal benefit — a maximum of $350 — and it ended the program this past June 30th because of its budget shortage.
  • An increase in the Child Care Tax Credit for working parents up to $3,000 per child. The average benefit is now $550. The program is different from the Child Tax Credit, and working parents can benefit from both.
  • A new second-earner tax credit. The tax cut for families in which the second worker earns at least $10,000 a year would be $500. Families earning up to $120,000 a year could get the benefit. Families earning up to $210,000 per year could get reduced benefits.

More Controversial Proposals

Obama will propose other tax benefits as well but he will also propose: a sweeping increase in taxes on inheritances; raising the tax rates on income from investments for high-income families; and a tax on borrowing by large financial institutions.

These proposals caused a spokesman for new House of Representatives Committee on Ways and Means Chairman Paul Ryan (R-Wisconsin) to term the President’s package as “not serious” even though Ryan has made a proposal to expand the EITC similar to Obama’s.

Territory Status the Problem

Puerto Rico can be treated differently than the States in Federal tax benefit programs because it is an “unincorporated territory,” although it is sometimes misleadingly called a “commonwealth” due to “Commonwealth” being a word in the formal name of the insular government.

Its worse treatment than the States in Federal programs relating to taxation, health, and low-income individuals is a reason for its economic underdevelopment and decline. As the President’s Task Force on Puerto Rico’s Status explained in 2011: “identifying the most effective means of assisting the Puerto Rican economy depends on resolving the ultimate question of status … In short, the long-term economic well-being of Puerto Rico would be dramatically improved by an early decision on the status question.”

Puerto Ricans rejected territory status and chose the equality of statehood in a plebiscite held along with the 2012 elections. A year ago, the Federal government enacted a law for another vote under Federal auspices because the “commonwealth status” party governor and legislature majorities very narrowly elected at the same time disputed the plebiscite.

The Federal vote would be on an option or options that can resolve the issue proposed by Puerto Rico’s Elections Commission to the extent approved by the U.S. Department of Justice as not conflicting with the Constitution, laws, and policies of the U.S., as past “commonwealth” party proposals have.

The Elections Commission has not proposed an option or options yet because the “commonwealth” party is deadlocked between factions that want to propose nationhood and that want continued unincorporated territory status -– although continued unincorporated territory status would not meet the requirement of resolving the issue. Puerto Ricans will be able to seek statehood or nationhood as long as the current status continues.

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