One of the negatives about statehood for Puerto Rico that people sometimes bring up is the fact that residents of a state would expect to file federal income taxes. The assumption here is that Puerto Ricans do not now have to pay federal income tax, and would lose something by having to pay those taxes.
This is not true.
Would statehood mean more taxes?
First, people earning less than $24,400 (for a married couple filing jointly) do not have to file federal income taxes at all.
The median household income in Puerto Rico is $20,296. This means that a family earning the median income in Puerto Rico doesn’t earn enough to be required to file, let alone to pay income tax.
Certainly there are families who will have to file and to pay taxes, but the average Puerto Rican will not.
Tax credits
In fact, many Puerto Rican families will benefit from tax credits for which they are not currently eligible, if they begin to file income taxes when Puerto Rico becomes a state.
Take the Child Tax Credit.
U.S. families can qualify for as much as $2,000 for each dependent child 16 or younger. Except in Puerto Rico, where this tax credit only kicks in for families with three or more children. The first or second child in a family does not make their household eligible for the credit.
Since most families in Puerto Rico only have one or two children, the Child Tax Credit is effectively not available to families in Puerto Rico.
What’s more, the IRS says that families in Puerto Rico must have
- Social security and Medicare taxes withheld from their wages, or
- Paid self-employment tax contributions, and
- Three or more qualifying children
So the poorest families in Puerto Rico are not eligible for this tax credit, even if they have three or more qualifying children.
The Tax Credit could be extended to Puerto Rico
The new Budget Reconciliation bill would extend the Child Tax Credit to Puerto Rico, allowing families in the territory to receive the credit just as families in the states do.
“Make no mistake, this is a historic breakthrough in our fight for equal treatment as American citizens,” Governor Pierluisi said in a press release. “The full Child Tax Credit will encourage economic growth, support Puerto Rican families, and strengthen our communities.”
Budget reconciliation is a process that facilitates efforts by Congress to come to an agreement on the country’s budget.
A long process
The extension of the Child Tax Credit to Puerto Rico has been a recommendation and a goal for years. El Nuevo Dia says that this measure was actually approved twice last year, though it was not implemented.
If Congress can make this change in Puerto Rico, why has it taken so long? Clearly, between the fiscal emergency on the Island, the devastation of Hurricane Maria, and the additional problems created by last year’s earthquakes, there is a need in Puerto Rico for assistance. Families could have benefitted from the Child Tax Credit as they do in the states.
However, Congress is allowed to treat Puerto Rico differently from the states. Legally, all states are and out be treated equally. Congress cannot refuse a tax credit to Mississippi ands give it to all the other states. But Congress is legally allowed to treat Puerto Rico differently from the states.
Congress could also give the Child Tax Credit to Puerto Rico this year and then take it away next year.
Like a state is not the same as statehood
It will be a very good thing for Puerto Rico if the Child Tax Credit is extended to Puerto Rico. It will help families to get this benefit, just like the states.
But it will be better when Puerto Rico is a state. As a state, Puerto Rico will be on an equal footing with the 50 current states. It will not be possible for Puerto Rico to be treated differently. The Island will have the same rights and responsibilities as all the other states.
And that will be permanent. For territories, Congress can give and Congress can take away. Puerto Rico needs the permanence and security of statehood. Tell your legislators that you want to see statehood for Puerto Rico.
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