Puerto Rico’s Fiscal Performance

About two weeks ago, the Center for the New Economy published its third annual assessment of Puerto Rico’s Fiscal Situation. As of May 2010 the Commonwealth’s fiscal situation remains complicated.  With respect to the current fiscal year, projections are for the Commonwealth government to close the books with a general fund deficit of $2.5 billion, which would be the Commonwealth’s eighth general fund deficit in a row.

Gambling the Budget

Governor Fortuño’s proposed budget for fiscal year 2010-11 includes three extraordinary measures to increase general fund revenues: a new tax enforcement program, which is expected to yield $241 million; a program to allow property owners to self-assess the value of their real property, which is expected to bring in an additional $89 million; and a proposal to legalize “adult entertainment machines”, which are estimated to produce some $220 million in new revenues.

Tributo

El ministro de finanzas de Luis XVI de Francia decía que imponer impuestos era como desplumar a un ganso. La meta es tratar de quitarle las más plumas posibles provocando los menos graznidos posibles. Esto sigue siendo tan cierto hoy como lo fue tres siglos atrás. Y en Puerto Rico el ganso está pelado y despavorido.

Analyzing Tax Expenditures

Federal law requires, since 1974, that a list of “tax expenditures” be included in annual federal budget documents. Tax expenditures are defined as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential tax rate, or a deferral of liability”.

The Principles for Tax Reform

Puerto Rico currently has a tax system that no one consciously would have built from the ground up. It is unduly burdensome to administer and enforce; it is inequitable, along both horizontal and vertical dimensions; it oftentimes encourages the inefficient allocation of resources and it inflicts enormous damage to our competitiveness.

The Outlook for 2010

In 2009, according to The Economist magazine, world output shrank by more than 1 percent, the first time since 1945 that it has declined on a year-over-year basis. At the same time, years of excessive lending and irrational asset pricing finally caught up with the world’s financial system.

The Economy in 2009

This year was a tough and difficult one for the Puerto Rican economy. In part due to the Great Recession and the financial crises that have adversely affected economic activity around the world since 2007.