The General Accountability Office has just published its findings on the cost of Puerto Rico statehood and the numbers are not pretty for the U.S. and for the Island. In sum the economic and fiscal costs of statehood would represent an enormous burden for the federal government, U.S. corporations, and every day Puerto Ricans.
GAO reviewed 29 federal programs which account for 86 percent of federal program spending for states or its residents. If Puerto Rico became a state, it could cost the federal government up to $5.2 billion in additional annual funding in those programs alone. According to statements by Resident Commissioner Pedro Pierluisi to the Puerto Rican press, the total sum could reach $10 billion, although he was probably exaggerating.
The cost will not be offset by new revenues.
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GAO estimates that federal individual income taxes from Puerto Rico could total $2.3 billion. It estimates that federal corporate tax revenues under statehood would range between -50 million to $3.4 billion under what GAO considers the likely scenario. The report points out that experts at the Department of Treasury and the Joint Committee on Taxation believe many U.S. corporations that currently operate there as controlled foreign corporations “would likely” relocate “to lower tax foreign locations” if Puerto Rico became a state, thus dampening potential tax revenues to the numbers above. Since $1.4 billion are currently collected from those corporations, the net gain in corporate tax revenues under statehood would range from minus 1.35 billion to $2 billion.
Add another $232 million in gasoline taxes, and the grand total in additional tax revenues from Puerto Rico would lie within a range of $1.1 billion to $4.5 billion. That is considerably less than the $5.6 billion GAO estimates statehood could cost, and astronomically less than the $10 billion the Resident Commissioner tells Puerto Ricans they will get from statehood.
That Puerto Rican statehood would costs billions of dollars is enough for fiscal conservatives to consider the case closed. Liberals might still consider the matter if statehood could do Puerto Rico good. It does not.
Puerto Rico has a $9 billion budget that is so tight it requires constant colossal efforts to balance that consistently fail. Its bonds are now in junk status out of fears regarding liquidity. Factor in the effects of statehood and all you see is devastation. The corporations that GAO believes would relocate to other jurisdictions if Puerto Rico becomes a state currently contribute $1.7 billion to the budget. That is 20 percent of the budget being wiped out. And it is only the beginning.
The report says that Puerto Rico would have to revise its tax structure because it cannot just pile federal taxes on top of its high tax rates. If Puerto Rico brings its state individual income taxes in line with Hawaii’s, the highest of any state, those revenues are reduced by more than $1.3 billion. Throw in a concomitant revision of corporate tax rates, and half of Puerto Rico’s budget is gone.
One can only begin to imagine the effect of losing the 25,000 direct jobs those relocating corporations now contribute, plus its perhaps 50,000 indirect jobs, and the over 100,000 jobs the government would have to sacrifice when its budget is axed right down the middle.
There is a simple reality. Puerto Rico’s small tax base makes statehood inadequate for the U.S. and for Puerto Rico. That is why its proponents frame the argument in terms of poetic yearnings for equality, diverting attention from the economics of statehood.
Hernández Mayoral is secretary of Federal Affairs for the Popular Democratic Party of Puerto Rico.
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Last week, the Government Accountability Office (GAO) released a report about the fiscal impact of Puerto Rico statehood on the federal government. The report strongly supports the conclusion that statehood would economically benefit both Puerto Rico and the nation as a whole.
A word of background. Puerto Rico has been a U.S. territory since 1898. Although Puerto Rico is home to 3.6 million American citizens—more than 21 states—island residents cannot vote for their president, have no representation in the Senate, and send a single non-voting delegate to the House. The federal government is constitutionally licensed to treat Puerto Rico worse than the states under federal programs, and the federal government uses that license in numerous instances. Puerto Rico’s status is impossible to reconcile with the principles of democracy and equality our nation strives to uphold at home and promotes abroad.
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The GAO report is timely. Since GAO commenced work in 2011, two historic events have occurred. In a 2012
referendum
sponsored by the local government, a majority of voters in Puerto Rico said they do not want Puerto Rico to remain a territory, and more voters expressed a desire for statehood than for any other status option. And in January, as a result of my initiative, Congress enacted a $2.5 million appropriation to enable Puerto Rico to conduct the first federally-sponsored referendum in its history. The law states that the purpose of the referendum is to “resolve” the territory’s ultimate status.
Meanwhile, over the past year, Puerto Rico’s economic problems, which are longstanding and structural, have devolved into a crisis. The three major credit rating agencies have downgraded the territory’s bonds to non-investment grade. Puerto Rico’s unemployment rate is 15.0 percent, compared to a U.S. national average of 6.7 percent. Every week, about 1,000 of my constituents move to the states in search of economic opportunity and political equality. Thus, GAO has released its report at a moment when territory status has driven Puerto Rico into a deep downward spiral and island residents are voting for statehood—at the ballot box and with their feet—in unprecedented numbers.
Having reviewed the context of the report, I turn to its contents. The methodology GAO uses to estimate the effect of Puerto Rico statehood on federal spending and revenues is straightforward. GAO observes how much funding Puerto Rico actually received under a specific federal program—or how much Puerto Rico actually paid in federal individual or corporate taxes—in a particular fiscal year, and then estimates how much Puerto Rico would have received—or paid—in that fiscal year if it had been a state. As GAO acknowledges, this methodology is static rather than dynamic, so it cannot account for the full range of mutual benefits that statehood would provide to Puerto Rico and the nation over time.
It is important to emphasize that the report examines statehood through a purely economic lens. However, for every statehood advocate I know, this is a civil rights issue as much as it is an economics issue. Statehood would deliver to Puerto Rico what the current status denies us: equality, democracy, justice, an end to second-class citizenship, a dignified status for a proud people. These principles are priceless and cannot be captured by an economic analysis.
That said, the GAO report reinforces the widely-held view that statehood would improve economic conditions and enhance quality of life in Puerto Rico. Indeed, the only people I have ever heard argue that statehood would not strengthen Puerto Rico’s economy are those who have a political or personal interest in opposing statehood. Such arguments are particularly easy to dismiss when made by Members of Congress who represent states and would never accept territory status for their own constituents.
The report notes that Puerto Rico is treated unequally under key federal programs, and that it would receive equal treatment as a state. Based on GAO’s analysis of Medicaid, Medicare, Supplemental Security Income, nutrition assistance, and highway funding—and taking into account programs GAO did not examine, like long-term care under Medicaid and federal subsidies under the health insurance exchange created by the Affordable Care Act—it can be calculated that statehood would inject an additional $9 to $10 billion into Puerto Rico’s economy each year. This figure, which underscores the scope and the severity of the discrimination Puerto Rico confronts as a territory, is consistent with other federal reporting. The Census Bureau reported that Oregon, a relatively well-to-do state that has a population size similar to Puerto Rico, received over $29 billion from the federal government in 2010, whereas Puerto Rico received $19 billion—a $10 billion difference.
At the same time, the report debunks the argument that statehood would have an adverse fiscal impact on the U.S. treasury, since new federal outlays to Puerto Rico will be significantly counterbalanced by new federal revenues generated from the island, which could amount to $7 billion a year. As Puerto Rico prospers, collections will increase further. The report thus reinforces that statehood, which is so plainly in Puerto Rico’s interest, is also in the national interest. This nation will benefit when Puerto Rico’s economy is strong, its residents are not compelled to move to the states to achieve their dreams or vote for their national leaders, individuals and businesses on the island flourish, and the tax base expands.
The reaction to the report from politicans in Puerto Rico who favor the status quo has been dishonest. Their description of the report bears almost no resemblance to the report itself. Their strategy is clear: if you cannot convince the public, try to confuse the public. For example, they claim the report concludes that hard-working island residents would have a large federal tax liability under statehood. The report says no such thing, and the assertion is false. A typical household in Puerto Rico will pay the same or less in total taxes under statehood than it pays now, due to the application of federal tax credits—which GAO estimates will total $718 million annually—and the ability of the Puerto Rico government to reduce its high local rates once it no longer needs to finance a disproportionate share of public services.
Over 80 days have passed since enactment of the law authorizing Puerto Rico to hold a federally-sponsored referendum and allocating funds for that purpose. Yet, the government of Puerto Rico—which is controlled by supporters of the status quo—has taken no action. I have proposed using the federal appropriation to hold a straightforward vote on Puerto Rico’s admission as a state. This was the format of the votes that led to Hawaii and Alaska becoming states. It is eminently fair, since those who support statehood can vote “Yes” and those who oppose it can vote “No.” Indeed, 132 Members of the U.S. House and Senate have cosponsored my legislation endorsing this process.
As the GAO report makes abundantly clear, Puerto Rico’s current status deprives my constituents of the quality of life they deserve as American citizens. The government of Puerto Rico should set aside its narrow political interests and schedule a vote on the territory’s admission as a state without delay.
Pierluisi is Puerto Rico’s representative in the U.S. Congress.
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It has been a long road, but it’s now just a matter of days --April 3 to be precise -- before Congress finally releases the much anticipated report made on the cost of Puerto Rico becoming the nation’s 51st state. The report was developed by the General Accounting Office.
The information contains, among other things, the impact of statehood on the federal Treasury, including the full complement disbursement of almost 90 percent of all federal programs to the people of our island. Among them are likely enrollment levels in Social Security’s Supplemental Security Income (SSI) Program, Medicaid, the Children’s Health Insurance Program (CHIP) and the Supplemental Nutrition Assistance Program (SNAP).
It is this report that has the enemies of statehood for Puerto Rico, a United States territory since 1898, scared.
Although this would not be the first report from the GAO on Puerto Rico -- a 1981 report gathered and organized economic information, but explicitly refused to speculate on the fiscal effects of the various status options -- the expectations are that this one will be in such detail that it will give the plight of almost 3.6 American citizens residing on the island a boost in their hopes of achieving equality.
In 2009, several newspaper reports claimed that a Congressional Budget Office (CBO) report dated July, 2009 placed a $9.4 billion price tag on Puerto Rico statehood.
The New York Times estimated the cost around $9.3 billion in an editorial back in 1990, apparently referring to a CBO report from April of 1990 which was explicitly limited to two considerations: (1) the reductions in the supply side of the economy stemming from a loss of Section 936 capital, and (2) changes in aggregate demand. Section 936, a federal tax policy that provided incentives for U.S.-based companies to move to Puerto Rico, has since been repealed.
Estimates on costs have shifted through the years, but that’s not the real situation.
The issue of statehood for Puerto Rico is not economic; it’s a civil rights matter. Puerto Ricans are American citizens and have the right to equality.
As for the cost of statehood, it is worth remembering that because of our current territorial status, the island does not have the tools to fully develop its economy.
One brief look at Puerto Rico’s economic situation -- high unemployment rate of 14.7, the exodus in just one year of more than 26,000 people from our labor market, and now the real threat of thousands of people losing millions of dollars in savings due to the devaluation of our credit rating -- confirms that fact.
The House Natural Resources Committee has had the report since March 4 and hasn’t released it. The committee has until April 2, before the GAO releases the information contained in it on the next day.
In recent weeks, several mid-level officials have started making remarks that could be viewed as against the desire of the people of Puerto Rico to become a full member of the nation. We are encouraged that the GAO report will change those misconceived views.
It’s time to move forward and the GAO report is another step in Puerto Rico’s path to statehood.
Aponte-Hernandez is a former speaker and current member of the Puerto Rico House of Representatives.
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24-hour news pundits may not be the most reliable sources, but even non-partisan, reputable economists and political scientists have long failed to predict the consequences, or benefits, of their favorite red or blue state fiscal policy . . . except when it comes to Puerto Rico.
Those who are trained in the sciences understand that, without a “true experiment,” it’s impossible to really know the impact of specific economic policies. When researching policy and economics, there is no research lab, no controlled environment, and little room for experimentation. Experiments are performed through the lens of history and with only theories as results. There are millions of variables that contribute to economic decisions at any given moment, making it impossible to separate the one that your favorite political party advocates.
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In the case of corporate taxes, for example, conservatives argue that increasing taxes in one state will provoke a mass exodus of businesses, along with their jobs, to its closest neighbor with a lower tax rate. Take Maryland Governor O’Malley’s surfeit of tax increases over the last few years and claims that Virginia - its more tax-friendly neighbor - has reaped the benefits of economic growth and increased public revenues. Although this seems intuitive, and probable, it’s impossible to know whether businesses have moved for cheaper taxes and reduced compliance costs or if owners are just afraid that a hurricane will sweep Maryland into the ocean.
Being an island, however, Puerto Rico’s economy represents an opportunity closer to a true experiment than any state in the continental U.S. Considering that most of the island’s residents and businesses don’t pay federal taxes, Puerto Rico has a level of autonomy greater than anywhere else in the U.S., and the costs to move outside of its jurisdiction are far more prohibitive than for businesses in other states, local policy has become the greatest economic driver in Puerto Rico (although IRS tax policy and U.S. demand are still major forces).
Although Puerto Rican political parties also aren’t defined by the typical socio-economic concerns that drive allegiance to our Republican and Democratic parties, choosing instead to divide (and divide they emphatically do) along the lines of their preference towards the island’s future status as a state, independent nation, or more refined status quo, liberal and conservative ideologies still pervade local politics.
Over the past 30 years, Puerto Rican politics has been dominated by more liberal, blue state-leaning policies. Of the eleven governors who presided over the Commonwealth of Puerto Rico, nine have been Democrats. By total time in office, Republicans have been in power for about 12 per cent of the time. In general, these governors have opted for increased spending, expanding governments, increasing welfare and other transfer payments from the Federal Government, and higher taxation in the hopes that revenues would come close to supporting government spending programs.
The result isn’t pretty. Since become a Commonwealth, the percentage of unemployed workers in Puerto Rico has been higher than anywhere in the U.S., oftentimes hovering in the mid-teens, while at times reaching the low 20s. Labor force participation is also very low, recently falling to 40 per cent (compared to 63 per cent in rest of country). Crime is extraordinarily high, entrepreneurship is falling, the informal economy is estimated to account for nearly 30 per cent of GDP (I think it’s closer to 40 per cent), nearly half of the island is dependent on welfare, the population is declining rapidly, bureaucratic red-tape is unreasonable, legislators refuse to divest the inefficient public corporations pushing utility costs to record highs, and, in case you haven’t seen in recent news, Puerto Rico has debt and deficits that are bringing it to the brink of insolvency. In fact, the only thing keeping it afloat is a bond market full of speculators hoping to make a quick buck before the island does have to ask (beg) for federal assistance.
There was one brief hiatus from Democratic rule during the previous administration, which, not so coincidentally, was also met with the only reversal of the economic downturn in recent history. Impaired by a deficit greater than $3 billion (more than 30 per cent of revenues), high unemployment, a post-recession economy, a large and growing government payroll, a bureaucracy that, in some cases, forced entrepreneurs to wait years to obtain the proper licensing, and deficit-laden public corporations and pension funds, Republican Governor Luis Fortuño insisted on policies that slashed spending and taxes, while privatizing the government’s biggest burdens. The conservative governor reduced the deficit by 80 per cent, reinvigorated manufacturing and export investment, lowered the time to obtain a business license to 90 days, increased the government’s credit ratings, improved small business growth, and lowered the unemployment rate resulting in the first period of economic expansion in six years.
Regrettably, voters decided to place their faith back in the hands of a blue state politician, the current governor of Puerto Rico . . . and things could not be worse. Unemployment quickly rose by a full percentage point during the first year of the new administration, pension liabilities make up more than 40 per cent of total debt, which continues to grow at well over 100 per cent of GDP, utility costs are often twice as high as on the mainland, domestic corporate taxes were increased by as much as 60 per cent, entrepreneurial and business grant programs were cut, professionals are leaving the island in droves, the economic activity index has fallen for the last fourteen months, and credit rating agencies have again lost faith. All three major raters reduced their outlook on Puerto Rico, while some analysts now consider default an inevitability.
Thanks to Democratic policies, Puerto Ricans are feeling bluer than ever.
Unfortunately, we’ll never have a chance to plan a real scientific experiment that pits red state against blue state fiscal policies. But, if Puerto Rico is the closest thing to it, it doesn’t take a trained researcher to understand the results: if governments lean a little more red, its citizens will feel a little less blue.
Vélez-Hagan is executive director of The National Puerto Rican Chamber of Commerce, economic policy researcher at the University of Maryland-Baltimore County, and author of the upcoming book, Nousonomics: The Common Sense behind Basic Economics.
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Pick a different state
Puerto Rico
Chair:
Hon. Roberto Prats
Hon. Roberto Prats
Vice Chair:
Luisette Cabanas
Luisette Cabanas
Executive Director:
Dominique A. Gilormini DeGarcia
Dominique A. Gilormini DeGarcia
San Juan, Apr 25 (EFE).- The radio telescope at Arecibo Observatory in Puerto Rico detected well-defined signals like distant bursts of radio waves or brilliant explosions lasting but fractions of a second, a phenomenon only seen before at Parkes Observatory in Australia.
The director of the Astronomy Section at Arecibo Observatory, a part of the National Astronomy and Ionosphere Center, Fernando Camilo, confirmed in an interview with Efe on Thursday the discovery made in November 2012 but never announced until this week.
Camilo said the phenomenon has been detected at least seven times through the radio telescope in Australia, but the importance of this one is that for the first time it has been documented at another observatory, which confirms that this is an astronomical reality and cannot be attributed to some peculiarity of a particular instrument.
"The question now is the nature of this phenomenon," the scientist, who for years studied astronomy in the United States, said.
"This could be a powerful burst of radio waves faraway in the universe, a kind of signal never detected before," which appears to come from outside our galaxy.
The phenomenon detected in November 2012 was a burst that lasted 3 thousandths of a second and came from some unknown point, which the scientist said introduces the idea of a new window on space between galaxies, where, he said, "there are no stars nor anything that shines."
Scientists at Parkes Observatory in Australia first detected these signals in 2007 and calculated them to come from thousands of light years beyond our galaxy.
The discovery at Arecibo Observatory was on Nov. 2, 2012, though the analysis of the phenomenon afterwards took several months to complete.
<a href="http://www.globalpost.com" rel="nofollow">http://www.globalpost.com</a>/dispatch/news/agencia-efe/140425/telescope-puerto-rico-detects-strange-rapid-bursts-radio-waves
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