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Puerto Rico Primer From The Economist


Everything you need to know about the sinking blue ship known as Puerto Rico has, as usual, been compiled by the Economist in a short, readable article here. The journey the island commonwealth has taken to get to the breaking point has been uniquely its own, as are its myriad challenges ahead, but the comparisons to Detroit, Greece, and other examples of blue model disaster are not hard to make. A porous tax system with exorbitantly high rates; union-dominated services being delivered at unaffordable prices; a ballooning system of public pension costs as the tax base shrinks from massive population loss; and few ideas to reverse course other than—what else?—still higher taxes. More:

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]

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  • Jacksonian_Libertarian

    I think it would be better if Puerto Rico put its financial house in order, rather than kicking the can down the road by stealing from the US Taxpayer.

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