If the governor cannot reverse the spiral of recession, austerity and population loss, Puerto Rico’s debts will become intolerable. Some $10 billion of them are protected by a constitutional guarantee, but the remaining $60 billion are backed only by specific taxes or utilities. While those rates could go as high as necessary, the public will be willing to pay only so much.Congress has little appetite to bail out Puerto Rico. But Mr Obama could probably spare it by simply looking the other way. In 2010 the island placed a levy on firms that sell products to parent companies on the mainland. The Internal Revenue Service now grants a dollar-for-dollar credit against federal corporate tax to the businesses this law affects. As a result, the policy costs the firms nothing, while transferring revenue from Washington to San Juan. Thus Puerto Rico can help itself to as much federal money as it wants by raising the tax. This rule is under review, but for now it represents the island’s greatest escape valve of all.
To get a better understanding of Puerto Rico’s troubles ahead and those facing many blue cities and states, read the whole thing here.[Puerto Rico image courtesy of Shutterstock]