Senator Wyden chaired the recent Senate hearing on Puerto Rico’s financial troubles, and he made a number of solid points on Puerto Rico’s economy. While many are calling for tax changes for Puerto Rico, Wyden pointed out that the tax breaks Puerto Rico has had in the past haven’t always led to greater prosperity for Puerto Rico. He notes that the rum carry-over initially paid for roads and schools, but recently has gone directly to the rum distillers.
Puerto Rico’s own tax policies have also tended to benefit others, not the people of Puerto Rico, Wyden pointed out:
By some estimates, Puerto Rico collects less than half of its sales tax. It recently put in place a program to attract certain Americans and their firms by zeroing out local taxes on capital gains, with no requirement that they contribute to the economy. Under a local tax break known as Act 20, service providers who move to the commonwealth have their corporate tax rate drop from 30 percent to four percent.
These strategies may appeal to some companies and attract some wealth, but there’s not much evidence to suggest they’re steering Puerto Rico’s economy toward prosperity. Scaling back or eliminating overly generous or ineffective tax breaks should be on the table as part of any long-term financial recovery plan.
Wyden repeatedly spoke about avoiding a sugar high — a quick infusion of capital to solve temporary problems, but with no long-lasting benefits. He’s thinking about that breakfast of doughnuts that leaves people drowsy before lunchtime.
Along with suggestions for tax changes that might provide temporary benefits, there have also been suggestions for austerity measures for the people of Puerto Rico:
In this debate, some people have made the argument that Puerto Rico’s safety net programs are too generous and need to be rolled back. For example, there’s a belief among some that Puerto Rico needs a lower minimum wage. But changing the law to cut people’s pay makes hardly any sense when American citizens in Puerto Rico already make less than half as much on average as those in the mainland U.S. In addition, lower wages and a tattered safety net will drive more young workers to the mainland, costing the island a vital engine of growth.
Rather than letting the people of Puerto Rico go hungry or giving a temporary rush of poorly-planned funds, Wyden recommends sensible tax changes.A better funding system for Medicaid and improvements to Medicare should be on the table. Puerto Rico could adopt an Earned Income Tax Credit to help raise incomes and encourage employment. The Child Tax Credit could be a bigger help to more families. And the commonwealth could change its own tax policies to make sure it’s able to invest in education and infrastructure in the years ahead. It’s important to move ahead with policies that amount to more than a momentary sugar high. The bottom line is that the solutions have to help Puerto Rico and its millions of American citizens build a stronger economic future, or else the debt cycle will continue.
If we look at these examples, we see that Senator Wyden is suggesting that Puerto Rico be treated like a State. Instead of special deals which end up keeping Puerto Rico afloat at a cost to its future, Puerto Rico should have the same options — from the EITC and Child Tax Credits to equal funding for federal health programs — that States enjoy. States look to bring well-paying jobs into their communities, providing specific tax advantages to companies that offer jobs rather than allowing corporations to wash their revenue through without leaving any of it in the community.
The best way to help Puerto Rico be more like a State is statehood for Puerto Rico. While Puerto Rico is in need of short-term assistance, statehood is the long-term solution. Tell your legislators what you think.
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