[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Program Descriptions]
[Section 12. Social Welfare Programs in the Territories]
[From the U.S. Government Printing Office, www.gpo.gov]


[1998 Green Book] SECTION 12. SOCIAL WELFARE PROGRAMS IN THE TERRITORIES

Coverage and Participation in Selected Programs
Expenditures for Selected Social Welfare Programs in the 
        Territories
Special Rules
  SSI Coverage
  Nutrition Assistance Block Grant for Puerto Rico and Programs 
            for the Northern Marianas and American Samoa
  Public Assistance Funding Caps
  Medicaid Caps and Matching Rate
  State Children's Health Insurance Program
  Consolidation of Certain Grants for Insular Areas Other than 
            Puerto Rico
Certain Tax Provisions that Affect Low-Income Families with 
        Children
References

            COVERAGE AND PARTICIPATION IN SELECTED PROGRAMS

     Most social welfare programs available to the 50 States 
and the District of Columbia are also available to the 
territories. The territories are: the Commonwealth of Puerto 
Rico, Guam, the Virgin Islands, the Commonwealth of the 
Northern Marianas, and American Samoa.\1\ Social welfare 
programs discussed in this chapter provide retirement and 
disability benefits, unemployment compensation, public 
assistance for low-income persons or families, education 
benefits, job training, and social services.
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    \1\ For an overview of how the territories are politically 
organized and their history see Brunno & Laney (1996). This section 
discusses the availability of social programs in the five major 
territories and provides an overview of special rules that apply there. 
It does not discuss Federal financial assistance for three areas that 
were formally part of the Trust Territories and are now independent in 
``free association'' with the United States: the Marshall Islands, the 
Federated States of Micronesia, and Palau. (The fourth area of the 
Trust Territories, the Northern Marianas, became a Commonwealth of the 
United States.) These areas remain eligible for some residual aid from 
the United States.
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     Social welfare programs can be divided into two 
categories:
 1. Federal programs that make direct payments for 
        individuals.--These programs have Federal eligibility 
        and benefit rules and are administered directly by the 
        Federal Government.\2\
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    \2\ This chapter's classification of programs as ``direct'' 
payments for individuals differs from that found in Federal budget 
documents and the Census Bureau publication Federal Expenditures by 
State. This chapter classifies unemployment compensation (UC) as a 
Federal-State program because States administer and design their own 
programs within Federal guidelines. UC is not a grant-in-aid program, 
so that other documents classify it as a direct payment for 
individuals. Food stamps is also classified as a Federal-State program 
because it is administered by the States.
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 2. Federal-State programs.--For these programs, States and 
        sometimes localities have a role in the design, 
        administration, and often financing of benefits and 
        services. For the territories to participate in the 
        joint Federal-State programs, Federal law must make 
        them eligible, but the territory's government must act 
        to meet conditions for Federal assistance.
     Table 12-1 shows the coverage of residents of the 
territories by selected social welfare programs directly 
administered by the Federal Government. With the exceptions of 
Supplemental Security Income (SSI), residents of the 
territories are eligible for social benefits on virtually the 
same basis as residents of the States.

  TABLE 12-1.--COVERAGE OF RESIDENTS OR WORKERS IN THE TERRITORIES FOR  
 SELECTED SOCIAL WELFARE PROGRAMS MAKING DIRECT PAYMENTS FOR INDIVIDUALS
------------------------------------------------------------------------
                                                                        
           Program             Puerto   Virgin  Guam  Northern  American
                                Rico   Islands        Marianas    Samoa 
------------------------------------------------------------------------
Social Security..............  Yes     Yes      Yes   Yes       Yes     
Medicare.....................  Yes     Yes      Yes   Yes       Yes     
Supplemental Security Income   No      No       No    Yes       No      
 (SSI).                                                                 
Guaranteed student loans.....  Yes     Yes      Yes   Yes       Yes     
Pell grants..................  Yes     Yes      Yes   Yes       Yes     
------------------------------------------------------------------------
Source: Congressional Research Service.                                 

    Table 12-2 summarizes the availability in each territory of 
major social programs that are operated jointly by the Federal 
Government and the respective territory. Coverage of the 
Unemployment Compensation Program is determined in the Federal 
Unemployment Tax Act (FUTA), which applies to Puerto Rico and 
the Virgin Islands but not the other territories. Though 
coverage is determined in FUTA, program design is left to the 
territory. The Food Stamp Program itself operates only in the 
Virgin Islands and Guam, with a special block grant operating 
in Puerto Rico and special ``food-stamp-like'' grant programs 
in the Northern Marianas and American Samoa. The other 
nutrition programs, for which benefits are fully federally 
financed but administration is left to the States, generally 
apply in the territories.
     Most Federal-State social welfare programs other than 
those discussed above are grant-in-aid programs by which the 
Federal Government helps finance benefits and services in State 
or local programs. Territories, like States, may choose not to 
participate in grant programs. Participation in a program 
entails accepting Federal rules and guidelines and sometimes 
providing State or local dollars to match Federal dollars.
     Table 12-2 shows whether Federal law makes the territory 
eligible to participate and whether the area participated in 
the program in fiscal year 1997 (TANF entry indicates whether 
the area met the requirement to submit a plan by July 1, 1997). 
Federal law permits some agencies to consolidate funding and 
waive certain requirements of grant programs for territories 
other than Puerto Rico.

                                                     TABLE 12-2.--FEDERAL-STATE SOCIAL WELFARE PROGRAMS IN THE TERRITORIES, FISCAL YEAR 1997                                                    
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Puerto Rico                    Virgin Islands                     Guam \1\                  Northern Marianas                American Samoa       
              Program              -------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Eligible      Participating      Eligible      Participating     Eligible     Participating     Eligible     Participating     Eligible     Participating 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unemployment compensation:                                                                                                                                                                      
     Unemployment compensation....  Yes           Yes                Yes           Yes               No           NA                No           NA                No           NA              
Public assistance and related                                                                                                                                                                   
 programs:                                                                                                                                                                                      
     TANF.........................  Yes           Yes                Yes           Yes               Yes          Yes               Yes          No                Yes          No              
     Aid to the Aged, Blind, and    Yes           Yes                Yes           Yes               Yes          Yes \1\           Yes          No                No           NA              
     Disabled.                                                                                                                                                                                  
     Child Support Enforcement....  Yes           Yes                Yes           Yes               Yes          Yes               Yes          No                Yes          No              
     Foster Care and Adoption       Yes           Yes                Yes           No                Yes          No                Yes          No                Yes          No              
     Assistance.                                                                                                                                                                                
Medical assistance:                                                                                                                                                                             
     Medicaid.....................  Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
     State Children's Health        Yes           NA                 Yes           NA                Yes          NA                Yes          NA                Yes          NA              
     Insurance Program.                                                                                                                                                                         
     Maternal and Child Health      Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
     Block Grant.                                                                                                                                                                               
     CCDBG........................  Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
     Social Services Block Grant    Yes           Yes                Yes           Yes \2\           Yes          Yes \2\           Yes          Yes \2\           Yes          Yes \2\         
     (title XX).                                                                                                                                                                                
Food and nutrition assistance:                                                                                                                                                                  
    Food Stamp Program............  No            NA                 Yes           Yes               Yes          Yes               No           NA                No           NA              
     Nutrition Assistance Block     Yes           Yes                No            NA                No           NA                Yes          Yes               Yes          Yes             
     Grant (Puerto Rico) and                                                                                                                                                                    
     special grants for ``food-                                                                                                                                                                 
     stamp-like'' programs                                                                                                                                                                      
     (Northern Marianas and                                                                                                                                                                     
     American Samoa).                                                                                                                                                                           
     Child nutrition..............  Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
     WIC..........................  Yes           Yes                Yes           Yes               Yes          Yes               Yes          No                Yes          Yes             
Education and training:                                                                                                                                                                         
     Compensatory education for     Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
     the disadvantaged.                                                                                                                                                                         
     JTPA.........................  Yes           Yes                Yes           Yes               Yes          Yes               Yes          Yes               Yes          Yes             
Child protection:                                                                                                                                                                               
     Child welfare services (title  Yes           Yes                Yes           Yes \2\           Yes          Yes \2\           Yes          Yes \2\           Yes          Yes \2\         
     IV-B Part 1).                                                                                                                                                                              
     Family preservation services   Yes           Yes                Yes           Yes \2\           Yes          Yes               Yes          Yes               Yes          Yes             
     (title IV-B Part 2).                                                                                                                                                                       
     Child Abuse Prevention and     Yes           Yes                Yes           Yes \2\           Yes          Yes \2\           Yes          Yes \2\           Yes          Yes \2\         
     Treatment Act.                                                                                                                                                                             
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\1\ Guam operated adult public assistance programs in fiscal year 1997, but did not receive Federal funding for them because it used all of its limited public assistance funds for Aid to      
  Families with Dependent Children (AFDC) in that year.                                                                                                                                         
\2\ Programs operating under consolidated grants.                                                                                                                                               
                                                                                                                                                                                                
 NA--Not available or not applicable.                                                                                                                                                           
                                                                                                                                                                                                
Note.--The State Children's Health Insurance Program (S-CHIP) will begin in fiscal year 1998.                                                                                                   
                                                                                                                                                                                                
 Source: Congressional Research Service.                                                                                                                                                        

  EXPENDITURES FOR SELECTED SOCIAL WELFARE PROGRAMS IN THE TERRITORIES

     Table 12-3 summarizes Federal expenditures for programs 
that make direct payments from the Federal Treasury for 
individuals. These programs are the largest of the social 
welfare programs and require no fiscal contribution from the 
States or territories.

     TABLE 12-3.--FEDERAL EXPENDITURES FOR DIRECT PAYMENTS TO INDIVIDUALS IN THE TERRITORY, FISCAL YEAR 1996    
                                            [In thousands of dollars]                                           
----------------------------------------------------------------------------------------------------------------
                                                               Puerto               Virgin    Northern  American
                          Program                               Rico       Guam     Islands   Marianas    Samoa 
----------------------------------------------------------------------------------------------------------------
Social Security...........................................   $3,135,526   $55,024   $56,661     $1,208   $17,897
Medicare..................................................    1,031,896     1,010    17,882         NA        NA
Supplemental Security Income..............................           NA        NA        NA      1,976        NA
Pell grants...............................................      257,919     1,306     1,141        489       820
Federal family education loan--interest subsidies.........           58        NA        47         NA       NA 
----------------------------------------------------------------------------------------------------------------
NA--Not available.                                                                                              
                                                                                                                
Source: Congressional Research Service based on U.S. Bureau of the Census (1997). Residents of all territories  
  are eligible for Medicare and Federal family education loans, but reported data for some areas are either $0  
  or round to $0 (less than $500).                                                                              

    Table 12-4 shows expenditures for selected Federal-State 
social programs in the territories. The table shows both total 
expenditures and the amount of those expenditures for which the 
territory received reimbursement from the Federal Government. 
The Federal Government reimburses the territories for 50 
percent of Medicaid expenditures up to the territorial funding 
ceiling set in statute. Similarly, the Federal Government 
reimburses these areas for 75 percent of their public 
assistance expenditures, up to a statutory cap. The table also 
shows financial information for the Child Support Enforcement 
Programs. The territories are provided a 66 percent match for 
child support administrative expenses, though some expenses are 
reimbursed at a higher rate. They also receive incentive 
payments based on their child support collections and the ratio 
of those collections to expenditures.

   TABLE 12-4.--TOTAL EXPENDITURES AND FEDERAL ASSISTANCE FOR SELECTED FEDERAL-STATE PROGRAMS OPERATING IN THE  
                                         INSULAR AREAS, FISCAL YEAR 1996                                        
                                            [In thousands of dollars]                                           
----------------------------------------------------------------------------------------------------------------
                                                             Puerto                Virgin    Northern   American
                         Program                              Rico       Guam     Islands    Marianas    Samoa  
----------------------------------------------------------------------------------------------------------------
Unemployment compensation:                                                                                      
     Federal expenditures................................   $308,671         NA    $11,817         NA         NA
Medicaid:                                                                                                       
     Total medical assistance payments...................    235,617    $11,047      7,292     $2,140    $10,807
     Total administrative expenses.......................     20,584        743      1,081        220         NA
     Total expenditures..................................    256,201     11,790      8,373      2,360     10,807
     Total Federal reimbursement (subject to caps).......    128,100      4,060      4,193      1,180      2,350
Public assistance expenditures:                                                                                 
     AFDC benefits.......................................     63,448     14,100      4,174         NA         NA
    Emergency assistance.................................        413          0          0          0          0
     AFDC administrative.................................     14,627      1,580        702         NA         NA
     Adult assistance benefits...........................     13,097      2,066        854         NA         NA
     Total public assistance expenditures................     91,586     17,745      5,730         NA         NA
     Total Federal grants (subject to caps)..............  \1\ 68,90                                            
                                                                   8      3,800      2,800         NA         NA
JOBS (includes child care funding for AFDC recipients):                                                         
     Total expenditures..................................     16,809        581        337         NA         NA
     Total Federal grants (subject to caps)..............     11,552        391        252         NA         NA
Child support enforcement (preliminary fiscal year 96                                                           
 data):                                                                                                         
     Administrative costs................................     28,569      2,624      2,418         NA         NA
     Federal share of administrative costs...............     19,504      1,744      1,597         NA         NA
     Incentive payments..................................        372        281         67         NA         NA
Nutrition assistance programs:                                                                                  
     Food Stamp Program..................................         NA     28,174     44,302         NA         NA
     Nutrition Assistance Block Grant (Puerto Rico) and                                                         
     grants for food-stamp-like programs.................  1,143,000         NA         NA      4,459      4,427
     Child nutrition.....................................    165,018      4,769      5,583      3,111      6,294
     WIC.................................................    132,779      5,200      6,025         NA     4,325 
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\1\ In fiscal year 1996, Puerto Rico transferred $13.1 million to the Social Services Block Grant (SSBG), so    
  that grants subject to the ceilings under section 1108(a) as then in effect totaled $82 million.              
                                                                                                                
 NA--Not available.                                                                                             
                                                                                                                
Source: Congressional Research Service. Data are from the U.S. Census Bureau, Department of Health and Human    
  Services (DHHS) and the Department of Agriculture.                                                            

                              SPECIAL RULES

                              SSI Coverage

     The Social Security Amendments of 1972 (Public Law 92-603) 
ended matching grant programs to the 50 States and the District 
of Columbia for assistance to needy adults who were aged, 
blind, or disabled and replaced them with Supplemental Security 
Income (SSI). The new SSI Program provided a Federal 
entitlement program of cash payments for individuals in these 
groups. However, SSI was not extended to Puerto Rico, Guam, and 
the Virgin Islands. The old grant programs for the needy, aged, 
blind, and disabled authorized under four separate titles of 
the Social Security Act \3\ continue there. The territories 
determine benefit amounts. In contrast, the regular SSI Program 
has federally determined benefits (though States may supplement 
them). SSI also is fully federally financed. SSI is available 
in the Northern Marianas.
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    \3\ Title I, Grants to States for Old-Aged Assistance for the Aged; 
Title X, Grants to the States for Aid to the Blind; Title XIV, Aid to 
the Permanently and Totally Disabled; and Title XVI, Grants to the 
States for the Aid to the Aged, Blind, and Disabled.
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 Nutrition Assistance Block Grant for Puerto Rico and Programs for the 
                  Northern Marianas and American Samoa

     Among the territories, the regular Food Stamp Program 
operates only in Guam and the Virgin Islands. The Omnibus 
Budget Reconciliation Act of 1981 (Public Law 95-35) replaced 
the Food Stamp Program in Puerto Rico with a special Nutrition 
Assistance Block Grant. Puerto Rico was given a great deal of 
flexibility in program design. Funding is limited to an amount 
set in law, which for fiscal year 1998 is $1.204 billion, 
making it by far the largest Federal needs-tested program in 
the Commonwealth. The Northern Marianas and American Samoa are 
also given fixed grants with which they administer food-stamp-
like programs, though the program in American Samoa is limited 
to the elderly and disabled.
     The programs that operate instead of the regular Food 
Stamp Program in Puerto Rico, the Northern Marianas, and 
American Samoa were generally unaffected by the changes to the 
Food Stamp Program made in the 1996 welfare reform law. 
Additionally, the bar on food stamp eligibility that applies to 
most noncitizens does not apply in these programs. Instead, 
these territories are governed by the law's rules for public 
benefits that apply to needs-tested programs other than food 
stamps. That is, the territory may aid those who arrive after 
August 22, 1996, after they have resided in the United States 
for 5 years.
     Regular food stamp rules apply in Guam and the Virgin 
Islands, and noncitizens are generally ineligible for food 
stamps in these areas. Guam and the Virgin Islands have higher 
food stamp benefits than are paid in the 48 contiguous States 
and the District of Columbia (higher food stamp benefits are 
also paid in Alaska and Hawaii), and households in these areas 
are also subject to special rules governing deductions from 
gross income when calculating countable income to determine 
food stamp payments.

                     Public Assistance Funding Caps

     Combined Federal funding for public assistance programs 
for Puerto Rico, Guam, and the Virgin Islands is capped at a 
maximum dollar amount. The cap for the territories covers the 
combined Federal grants of Temporary Assistance for Needy 
Families (TANF); the grant programs discussed above that 
operate in these areas instead of SSI; and programs under title 
IV-E of the Social Security Act (foster care, adoption 
assistance, and independent living programs).
     Before July 1, 1997, the public assistance cap covered 
Federal matching grants under Aid to Families with Dependent 
Children (AFDC), assistance programs for needy adults; and 
title IV-E programs. The welfare reform legislation (Public Law 
104-193) ended AFDC and related programs, and established the 
new TANF Program, which provides capped Federal funding for all 
jurisdictions. The bulk of TANF funding is contained in a basic 
block grant which allocates funds through a formula based on 
Federal payments from fiscal year 1992 through fiscal year 
1995.
     For Puerto Rico, Guam, and the Virgin Islands, the welfare 
reform bill also:
 1. Raised the overall cap on public assistance expenditures by 
        approximately 10 percent, effective October 1, 1996; 
        and
 2. Authorized a new special matching grant (section 1108(b) 
        grants) for their TANF or title IV-E (foster care, 
        adoption assistance, and independent living) programs. 
        It provides 75 percent reimbursement for expenditures 
        made on these programs above the fiscal year 1995 
        levels.
     Table 12-5 shows the public assistance funding caps and 
the TANF block grant and the total public assistance funding 
caps for the territories. These caps are not subject to 
adjustment or increases under current law. Funds above the TANF 
cap amount are available on a 75 percent matching basis for 
adult public assistance, TANF, or title IV-E (foster care, 
adoption assistance, and independent living) programs. This 
superblock feature of funding for the territories provides them 
with added flexibility in using Federal funds to attack social 
problems.

                           TABLE 12-5.--PUBLIC ASSISTANCE FUNDING FOR THE TERRITORIES                           
                                            [In thousands of dollars]                                           
----------------------------------------------------------------------------------------------------------------
                                                                                Funds available                 
                                                                  TANF State       for adult                    
                                                                   family      assistance, child   Total funding
                          Territory                              assistance     protection, and         cap     
                                                                    grant       1108(b) matching                
                                                                                     grants                     
----------------------------------------------------------------------------------------------------------------
Puerto Rico..................................................         $71,563            $35,692        $107,255
Guam.........................................................           3,465              1,221           4,686
Virgin Islands...............................................           2,847                707           3,554
American Samoa \1\...........................................              NA              1,000          1,000 
----------------------------------------------------------------------------------------------------------------
\1\ American Samoa is not eligible for grants under the adult public assistance programs.                       
                                                                                                                
 NA--Not available.                                                                                             
                                                                                                                
Source: Congressional Research Service.                                                                         

    Puerto Rico, Guam, the Virgin Islands, and American Samoa 
are also eligible for certain TANF funds in addition to these 
caps. They can receive additional funding for welfare-to-work 
grants created in the Balanced Budget Act of 1997 (Public Law 
105-33), bonuses for high performance and reductions in out-of-
wedlock births, and evaluations.

                    Medicaid Caps and Matching Rate

     For the States, there is no limit on Federal payments for 
Medicaid. As with public assistance programs, however, the 
territories are subject to spending caps for Medicaid. The 
Balanced Budget Act of 1997 raised the Medicaid funding caps 
for the territories. Table 12-6 shows the Medicaid caps for 
fiscal year 1998 under prior law, the increase enacted in the 
Balanced Budget Act, and the new caps for fiscal year 1998. For 
fiscal year 1999 and subsequent fiscal years, these caps will 
be increased by the percentage change in the medical care 
component of the Consumer Price Index (CPI) for all Urban 
Consumers. The Medicaid matching rate, which determines the 
share of Medicaid expenditures paid for by the Federal 
Government, is statutorily set at 50 percent for the 
territories.

                    TABLE 12-6.--MEDICAID FUNDING CAPS FOR THE TERRITORIES, FISCAL YEAR 1998                    
                                            [In thousands of dollars]                                           
----------------------------------------------------------------------------------------------------------------
                                                                                     Increase                   
                                                                                    provided by     New fiscal  
                            Territory                              Prior law cap  Public Law 105-  year 1998 cap
                                                                                        33                      
----------------------------------------------------------------------------------------------------------------
Puerto Rico.....................................................        $137,000         $30,000        $167,000
Virgin Islands..................................................           4,150             750           4,900
Guam............................................................           4,340             750           5,090
Northern Marianas...............................................           1,310             500           1,810
American Samoa..................................................           2,510             500          3,010 
----------------------------------------------------------------------------------------------------------------
Source: Congressional Research Service based on discussions with Health Care Financing Administration staff.    

                State Children's Health Insurance Program

     All territories are eligible to participate in the State 
Children's Health Insurance Program (S-CHIP) created in the 
Balanced Budget Act of 1997 (Public Law 105-33). Except for a 
special rule for funding, S-CHIP will operate in the 
territories on the same terms as in the States. The program 
provides funds at a 65 percent matching rate to the territories 
up to a maximum cap. The cap for the territories is a special 
set-aside 0.25 percent of total available funding. For fiscal 
year 1998 through fiscal year 2001, Puerto Rico's cap is $9.8 
million; Guam's cap is $374,063; the Virgin Islands cap is 
$277,875; American Samoa's cap is $128,250; and the Northern 
Mariana's cap is $117,563.

  CONSOLIDATION OF CERTAIN GRANTS FOR INSULAR AREAS OTHER THAN PUERTO 
                                  RICO

     Public Law 95-134 authorized any Federal agency to 
consolidate grants for the territories of Guam, the Virgin 
Islands, the Northern Marianas, and American Samoa. Each of 
these areas is permitted to submit a single application and are 
paid a single sum that could be expended on any purpose 
allowable under any of the programs in the consolidated grant. 
The areas are permitted to determine the proportion of the 
consolidated grant to be spent on various activities. Public 
Law 95-134 also permits the administering agency to waive 
matching and application or reporting requirements.
     The Department of Health and Human Services (DHHS) permits 
Guam, the Virgin Islands, the Northern Marianas, and American 
Samoa to consolidate up to 22 grant programs, including the 
Social Services Block Grant (title XX), Maternal and Child 
Health, child welfare services, and Child Abuse and Neglect 
State Grants.\4\ DHHS permits these areas to submit a single 
report in lieu of individual reports required for the programs 
included in a consolidated grant. All eligible insular areas 
have opted for consolidated grants, though for only some of the 
programs (see table 12-2 for an indication of which major 
programs are consolidated in each area).
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    \4\ See regulations at 45 CFR 97.10-97.16. The regulations list 21 
programs that may be consolidated. In addition to these 21 programs, 
information from DHHS indicates that the territories can also 
consolidate the title IV-B subpart B program for family preservation 
(which is not listed in the regulations).
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 CERTAIN TAX PROVISIONS THAT AFFECT LOW-INCOME FAMILIES WITH CHILDREN 
                                  \5\
---------------------------------------------------------------------------

    \5\ For a general discussion of the application of Federal taxes in 
the territories see Brumbaugh (1994).
---------------------------------------------------------------------------
     Residents of Puerto Rico are generally exempt from the 
Federal personal income tax, and hence are not eligible for tax 
provisions that affect low-income families with children such 
as the earned income tax credit (EITC) and the dependent care 
tax credit (DCTC). Residents of the other territories also do 
not pay Federal personal income taxes. However, residents of 
the Virgin Islands, Guam, and the Northern Marianas benefit 
from the EITC and the DCTC of the Federal Tax Code because 
their territorial tax systems ``mirror'' that of the Federal 
income tax. That is, the territories generally use the Federal 
income tax system as their own, though residents actually pay 
their taxes to the territory and not the Federal Government. 
Federal law requires the Virgin Islands to use the Federal 
income tax system as the territorial tax system. Guam, the 
Northern Marianas, and American Samoa are also required to 
mirror the Federal income tax unless they execute an agreement 
with the Treasury Department meeting certain conditions 
required to establish an independent tax system. Only American 
Samoa has executed such an agreement.
     The corporate Tax Code includes two tax credits offered to 
employers who hire welfare recipients: the work opportunity tax 
credit (WOTC) and the welfare-to-work tax credit enacted in 
Public Law 105-34. U.S. chartered corporations operating in the 
territories are eligible for these two credits because the 
Federal corporate tax is levied on their worldwide income. 
However, U.S. chartered corporations operating in the 
territories may already have their Federal tax liability 
eliminated or significantly reduced by the possession's tax 
credit, a special incentive provided to companies that operate 
in the territories.
     Corporations chartered in territories are considered 
``foreign'' corporations under the Federal Tax Code. Therefore, 
companies chartered in Puerto Rico would not benefit from 
Federal tax credits for employers that hire welfare recipients. 
However, companies chartered in the Virgin Islands, Guam, and 
the Northern Marianas that operate under mirror tax systems do 
benefit from these credits under territorial tax systems.

                               REFERENCES

Brumbaugh, D.L. (1994, June). Federal taxes and the 
        territories: An overview (CRS 94-498E). Washington, DC: 
        Congressional Research Service.
Brunno, A., & Laney, G.P. (1996). U.S. insular areas and their 
        political development (CRS Report 96-579 GOV). 
        Washington, DC: Congressional Research Service.
U.S. Bureau of the Census. (1997, April). Federal expenditures 
        by state for fiscal year 1996 (Report FES/96). 
        Washington, DC: U.S. Department of Commerce.