With the recent destruction of just about every inch of Puerto Rico, the fact that this island nation is actually a U.S. commonwealth and its 3.4 million citizens are actually U.S. citizens has come into the spotlight. According to a recent survey conducted by USA Today in conjunction with Suffolk University found that only 47 percent of Americans knew that Puerto Ricans are actually U.S. citizens. However, despite the fact they are U.S. citizens, they do not enjoy the same benefits afforded to the rest of Americans, as Puerto Rico does not enjoy statehood.
More Federal Expenditure
One of the biggest concerns with Puerto Rico achieving statehood is that rather than adding to federal funds, it would significantly deplete them. Why? The problem is that the current financial status of the country is in such dire shape that it would instantly become the poorest state in the union. According to a report published by the House Committee on Natural Resources regarding ten of the more popular federal programs, adding Puerto Rico as the 51st state would cost the U.S. a minimum of $4.5 to 5.7 billion annually. Furthermore, once all the costs of federal programs the citizens would be eligible for were added in, this total would be dramatically higher.
Would Taxes Collected Offset These Costs?
Currently, as a U.S. commonwealth, citizens of Puerto Rico are not required to pay Federal income taxes on the money they earn on the island. While it is true that if the islands were granted statehood, residents would end up paying income taxes, no one truly knows how much would be collected. The average Puerto Rican income lies in the range of $14,237. In comparison, Mississippi, the current poorest state in the U.S. has a per capita income of $30,399 with only 43 percent of its residents paying income taxes.
As these numbers show, the estimated number of Puerto Ricans who might actually pay income taxes would be significantly less, resulting in far more federal expenditure to support Puerto Rico and those who live there. The issue here is that Puerto Rico is currently $74 billion in debt on top of $49 billion in pension liabilities, which the Feds would become responsible for if they achieve statehood.
Understanding the Puerto Rican Economy
One of the biggest problems Puerto Rico faces is that for more than a decade this island nation’s economy has been in a serious declining spiral. The only year in the past decade that Puerto Rico’s economy was not in the red was 2012, and even then, the GDP was a flatline. Taking this one step further, economists say that by the end of 2017, the Puerto Rican economy is expected to shrink back to where it was back in 2000. At the same time, the rest of the U.S. economy is expected to grow by up to 35 percent.
One reason given for the stagnation and shrinkage of Puerto Rico’s economy is section 936 of the IRS Code. This particular code gave very specific tax incentives to U.S. companies who chose to operate in Puerto Rico. However, this code was removed in 2006, which incidentally was the first year the latest rounds of recession gained a foothold.
Another cause of the recession has been traced to the steady decline of the island’s population which currently shows no sign of slacking off. According to the records, the population in 2016 was 3.4 million, but by 2025 it is expected to drop below 3 million. When you factor this steady decline in population in with a 10 percent unemployment rate and an average income which is less than half of the poorest state in the Union, it becomes easier to see why there is opposition to making Puerto Rico the 51st state of the United States. A genuine fear exists that once the island becomes a state, it may create a massive drain on federal funding without having a strong enough tax base to help recover at least some of the federal money that would be spent supporting those who live there.
With a national debt that encompasses $74 billion in bonds, an additional $49 billion in unfunded pension obligations, a 10 percent unemployment rate, and numerous other local economy obstacles, bringing Puerto Rico in to the Union may cost more than the U.S. economy can currently afford.