THE BLOG

GAO Confirms Statehood Too Costly for Puerto Rico and the U.S.

04/02/2014 01:16 pm ET | Updated Jun 02, 2014
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Granting statehood to Puerto Rico would set back the island's economy, cost American companies billions of dollars and decrease sources of federal revenues.

According to a new report published by the U.S General Accountability Office (GAO), out of the estimated $5.2 billion in new federal spending Puerto Rico would receive, only a range of $2-4 billion would come back in new revenues for the federal government. However, statehood would mean that every day Puerto Ricans would be saddled with $2.3 billion in new federal taxes that they do not pay today.

The GAO report addressed the adverse impact of statehood on the Island's finances, stating:

... [a]s a result of statehood, changes to Puerto Rico government spending and revenue could ultimately affect the government's efforts to maintain a balanced budged... statehood could [therefore] result in reduced Puerto Rico tax revenue. If Puerto Rico's government wished to maintain pre-statehood tax burdens for individual and corporations, it would need to lower its tax rates, which could reduce tax revenues.

Given Puerto Rico's recent financial struggles and the government of the Commonwealth's tough economic reform efforts, cutting almost half of the Island's budget would be disastrous. GAO also notes that Puerto Rico's current triple tax-exempt bonds would no longer be exempt from federal taxes, which would make it much harder for the Island to reduce its fiscal woes.

U.S. manufacturers in Puerto Rico, in particular pharmaceutical companies, would also face a higher tax-burden under statehood and the U.S GAO report confirms that many of them would leave. This would put in risk more than 80,000 jobs, plus tens of thousands more government jobs that would be at stake if the local government loses billions in tax revenues under statehood.

The U.S GAO report states:

According to tax policy experts at the Department of the Treasury and the Joint Committee on Taxation, changes in federal income tax requirements under statehood would likely motivate some corporations with substantial amounts of income derived from intangible assets to relocate from Puerto Rico to lower tax locations. The extent to which such corporations might relocate from Puerto Rico is unknown... [however] an alternative set of revenue estimates to account for some businesses with activities in Puerto Rico potentially relocating under statehood [ranges] between - $0.1 billion to $3.4 billon.

So not only will statehood negatively impact the Puerto Rican economy by imposing a larger-than-life fiscal burden on its people and its government, but it will also encourage capital migration, which will in turn reduce the sources of federal tax revenue from Puerto Rico -- and more importantly leave potentially more than 100,000 Puerto Ricans unemployed.

Beyond economics, however, it is important to note that Puerto Ricans have rejected becoming the 51st state on each of the four occasions we have voted on the matter since 1967. On November 2012, 1.9 million Puerto Ricans voted on the island's political status, with only 834,191 (44.4 percent) voting for statehood.

After all, it seems that at its current economic and fiscal juncture, neither Puerto Rico nor the U.S government is in position to consider statehood as a viable option for the island's political future. It is high time for the U.S. government to help Puerto Rico with economic development and let us decide our own future in a true process of self-determination that includes all sides -- not only statehood.