Commentary: Puerto Rico’s Billionaires Strategy

By Orlando Sotomayor
6 May 2014
The Bond Buyer
Vol.123, No.86
English (c) 2014 The Bond Buyer and SourceMedia, Inc. All rights reserved.

Recently relocated millionaires are a happy lot in Puerto Rico. Their lifestyle was a selling point in an April investors’ summit dedicated to luring financial sector firms and wealthy individuals to the island in exchange for exemption from United States taxes and a light local touch.

It’s not hard to empathize with their optimism. If Puerto Ricans faced a 4% top marginal tax rate, they would surely be quite happy. They would feel optimistic if they could afford to send their children to one of a handful of excellent preparatory schools that are testament to what financial resources, parental involvement, clear goals and accountability can achieve.

They would be on their way to becoming billionaires or at least millionaires if they could buy assets at a fraction of the cost taxpayers paid to remodel them. They would be over the moon if invited to a private function by one of the world’s great opera singers.

But life at the bottom 99.9% is another story. A middle class self-employed Puerto Rican faces a top tax rate of 48% when both local and Social Security taxes are taken into account. Corporations face even higher taxes, with Walmart declaring an average tax rate of over 70% and other businesses paying even more.

The average Puerto Rican household would need to devote half of gross income to send a single child to a top preparatory school. It would most certainly not be able to walk a child to school through the streets of El Condado, as suggested in a testimonial during the investors summit.

Rather, parents would have to wake up at five or six in the morning in order to beat gridlock traffic and get the student to a mediocre school in time for homeroom.

Local business owners would get few tax breaks and survive in spite of a government that provides few services but demands much in return.

Like it or not, getting wealthy individuals to move to the island in order to avoid U.S. taxes appears now to be a cornerstone of Puerto Rico‘s growth drive and is characteristic of the country’s eternal search for a quick and painless way to grow. Contrary to most other initiatives — many gathered through an Internet suggestion box — this one is in fact based on sound economics.

Although it does nothing to abate the outflow of talented Puerto Ricans, it builds productive capacity by attracting in-migration of stateside residents. Even better, the strategy does not cost the commonwealth one single penny since it is entirely financed by the U.S. Treasury through foregone taxes.

It is then similar in effect to a law enacted in 2011 charging a tax that manufacturing sector firms can deduct from their U.S. liabilities. Puerto Rican officials have become quite adept at diverting income from the U.S. Treasury to the Puerto Rican Treasury.

Even more interesting is the strategy’s distributive dimension. Every time a billionaire moves to Puerto Rico, inequality in the U.S. goes down while the opposite happens in the commonwealth, with consequences that are still far from well understood.

In a democracy each man and woman may be entitled to a single voice and vote, but some voices are louder than others. Some pointed out in the recent investors’ summit that statistics do not reflect their view of the performance of the island’s economy. Furthermore, they have suggested that indexes be changed to reflect such views.

Yet, official statistics paint a consistently bleak picture of the Puerto Rican economy. Yes, unemployment has fallen for three consecutive months, but so has employment. According to the same household survey, it is down 20% from a peak in 2006 and has declined every month without exception since mid-2012.

Sales tax collections are often offered as signs of economic recovery, but they are rarely corrected for inflation and do not account for expansions of their tax base. Likewise, overall tax-intake announcements do not come with warnings of one-time tax events and sharp hikes in corporate rates that are not sustainable over the long or medium term.

Most striking is the statistic that concerns the number of Puerto Ricans who have voted with their feet and chosen to move to the U.S. mainland in search of a better life. Just in the past three years, the equivalent of 4% of the population has opted for that way out. Middle class Puerto Ricans go north while U.S. millionaires and billionaires take their jets south.

The United States government does a disservice to the Puerto Rican people when it turns a blind eye to the back-door bailout it provides through the billionaire and manufacturing tax loopholes — the latter already accounting for over 20% of public revenues. It allows the commonwealth to avoid the politically costly reforms it must undertake if the island is to survive as a viable economic entity.

Both the tax code and the welfare state must be reformed to reward work and investment. Public schools need to provide education and not just jobs for potential voters. Utilities and other monopolies must be broken down or effectively regulated. This is what the island needs.

Unnecessary are cheerleaders or an Uncle Sam with deep pockets but a short attention span. If the U.S. government really wants to give us a hand, please do continue with the bailout, but demand reforms in return. Life in Puerto Rico is sweet at the top, now let’s work on the other 99.9%.

SourceMedia, Inc.

Tomado de

Stiglitz: ‘Puerto Rico, don’t let this crisis go to waste’

news is muy business

By Michelle Kantrow-Vázquez and Lorraine Blasor

Puerto Rico needs to make “clear demands” to the U.S. government regarding what is needed to pull through its present difficulties, including requesting more flexibility with the Jones Act, a legislation that is also hurting Hawaii.

So suggested Economist and 2001 Nobel laureate in Economic Sciences Joseph Stiglitz, keynote speaker at the Center for a New Economy’s annual conference, who also said Puerto Rico “can’t let this crisis go to waste.”

“When you face a crisis both in the public and private sector, hopefully it focuses attention on what needs to be done and what can be done and go beyond the simplistic solutions of “’we have to tighten our belt’,” he said.

“We have to tighten our belt may not be the answer. Yes, you may have to, but that’s only the beginning of the discussion, not the end of the discussion,” he said. “This is where I think civil society discussions become very important, because there’s no monopoly on good ideas in society. You should not just look to the politicians as the source of ideas.” Continue reading “Stiglitz: ‘Puerto Rico, don’t let this crisis go to waste’”

El precio de la desigualdad

Joseph Stiglitz será el orador invitado a la Conferencia Anual del Centro para una Nueva Economía 2014 que se llevará a cabo el viernes 21 de febrero a partir de las 12:00PM en el Hotel Vanderbilt. El CNE cedió este importante recurso, ganador de un Nobel de Economía, a la Clínica de Asistencia Legal de la Escuela de Derecho de la Universidad de Puerto Rico para beneficiar a la comunidad universitaria y al público en general. Estará ofreciendo una conferencia magistral ese mismo viernes 21 a las 9;30 AM en el Teatro de la UPR El tema de la conferencia en el Teatro de la UPR será ‘El precio de la desigualdad’. Reproducimos, con autorización del Profesor Stiglitz, la columna sindicada que publicó hace algún tiempo sobre este tema. Todos los derechos se reservan. Agradecemos que no se publique parcial ni totalmente en otro medio, según petición de la oficina del conferenciante. Para reproducirla deben hacer las gestiones a través de la siguiente dirección:
Por Joseph Stiglitz

NUEVA YORK – A los estadounidenses les gusta pensar en su país como una tierra de oportunidades, opinión que otros en buena medida comparten. Pero aunque es fácil pensar ejemplos de estadounidenses que subieron a la cima por sus propios medios, lo que en verdad cuenta son las estadísticas: ¿hasta qué punto las oportunidades que tendrá una persona a lo largo de su vida dependen de los ingresos y la educación de sus padres?

En la actualidad, estas cifras muestran que el sueño americano es un mito. Hoy hay menos igualdad de oportunidades en Estados Unidos que en Europa (y de hecho, menos que en cualquier país industrial avanzado del que tengamos datos).

Esta es una de las razones por las que Estados Unidos tiene el nivel de desigualdad más alto de cualquiera de los países avanzados. Y la distancia que lo separa de los demás no deja de crecer. Durante la “recuperación” de 2009 y 2010, el 1% de los estadounidenses con mayores ingresos se quedó con el 93% del aumento de la renta. Otros indicadores de desigualdad (como la riqueza, la salud y la expectativa de vida) son tan malos o incluso peores. Hay una clara tendencia a la concentración de ingresos y riqueza en la cima, al vaciamiento de las capas medias y a un aumento de la pobreza en el fondo.

Continue reading “El precio de la desigualdad”