Tax Policy:

Analysis of Certain Potential Effects of Extending Federal Income Taxation to Puerto Rico

GGD-96-127: Published: Aug 15, 1996. Publicly Released: Sep 5, 1996.

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Pursuant to a congressional request, GAO provided information on the potential effects of extending the Internal Revenue Code (IRC) to residents of Puerto Rico.

GAO found that if IRC tax rules are applied to residents of Puerto Rico: (1) the residents would owe around $623 million in federal income tax before taking into account the earned income tax credit (EITC); (2) the aggregate amount of EITC would total $574 million; (3) 59 percent of the population filing individual income tax returns would earn some EITC; (4) 41 percent of the households filing income tax returns would have positive federal income tax liabilities, 53 percent would receive net transfers from the federal government, and 6 percent would have no federal tax liability; (5) more Puerto Rican residents and married couples would file federal tax returns if they qualified for EITC; (6) the average EITC earned by eligible taxpayers would be $1,494; (7) the Puerto Rican government would have to reduce its own individual revenue by 5 percent to keep the aggregate amount of income tax levied on its residents constant; (8) the taxes paid by certain classes of Puerto Ricans would change drastically; (9) the per capita combined individual income tax in Puerto Rico would increase by 5.5 percent; and (10) tax expenditures would total $2.8 billion in 1996 and $3.4 billion in 2000.

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