Puerto Rico Tax Hike


By Ben Barber

October 15, 2017

We see each night on TV tragic images of Puerto Rican people, begging for food, water, power and health care; struggling to survive amid the debris left by two hurricanes last month.

President Trump has tainted the debate over how to help the island, blaming the 3.5 million Puerto Ricans on the U.S. island territory for being dead beats, bankrupt, and run down.

But the poverty in Puerto Rico began long before the storms hit. Some 40 percent of its people were poor or jobless. But it was not because -- as Trump implied – they were lazy.

Puerto Rico’s financial ruin was due to a change in a little understood tax law passed by Congress in the 1950s granting pharmaceutical and other firms tax free benefits if they set up plants on the island.

I lived in Washington Heights in New York in the 50s. The city had been inundated by hundreds of thousands of people from Puerto Rico, seeking jobs and income not available on their Caribbean island. Our parents told us not to go east to Amsterdam Avenue because they feared the tough kids would beat us up. It never happened.

The tax break for industry worked, and the exodus to the mainland slowed as tens of thousands found jobs in the Caribbean island U.S. territory, especially in pharmaceutical plants.

But someone tipped over the apple cart, and in 1996, President Clinton signed into law a bill that ended the tax breaks for firms that invested in Puerto Rico. The bill took 10 years to be phased in. But after 2006, the manufacturing firms pulled up stakes, joblessness spiked and poverty spread. Weekly income dipped to $500, lower than all 50 states.

Without the jobs manufacturing exports to the US mainland, the island could not collect enough tax revenue to maintain schools, roads, power and other basic infrastructure.

There are other issues at play here. The 1917 Jones Act requires all sea borne exports and imports to the island be carried on U.S ships – far more costly than commercial international shipping.

Trump suspended the Act for a few days at the start of the hurricane crisis but then resumed its onerous provisions.

Research analyst Cate Long, author of a report to Congress on Puerto Rico’s financial jam, told me that the island government also failed to stabilize its tax rules, driving investors away.

It is hard to say how the rescue and recovery will work out and whether it will heal wounds or create bad memories of abandonment and blame in Puerto Rico’s hour of need.

But the U.S. government should take responsibility for the island’s unique history, culture and geography, helping it to write off the debt, relax the U.S. shipping stranglehold, and restore some incentives for the restoration of manufacturing plants to help the Puerto Ricans help themselves.


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