In December of 2017, Donald Trump signed the new GOP tax bill rearranging and recreating the way our country collects its dues. This bill affects every state in the Union, but it also affects one curious case in the Northeast Caribbean – Puerto Rico. The bill includes a new 12.5 percent tax on profits derived from intellectual property held by foreign companies. For Puerto Rico, this means it is treated differently from every other state. The new policy is designed to back the “America First” trademark of the Trump administration by bringing home American companies. Puerto Rico, even though it is a member of the United States Commonwealth, will be hurt by this new tax. Because of the favorable tax laws for businesses in Puerto Rico, it is not likely that they will move to the US as a result. If companies decide to move, they may move somewhere with a similar taxation protocol like Ireland. In this way, this new tax law may actually repel businesses from the US commonwealth. In order to see further into this issue, it is important to understand the history of the relationship between the US and Puerto Rico.
Puerto Rican history as a US territory began with the signing of the Treaty of Paris after the US defeated Spain in the Spanish-American War. Since then, US-Puerto Rican relations have been somewhat complicated and controversial when it comes to the rights, laws, and socio-political identities of Puerto Rican people. Ever since Puerto Rico was contracted into a US territory, they have been conforming more and more to the shape of a state under the union. Now more than ever, there is a sentiment among the Puerto Rican people, that they would like to join the union. A referendum was held in June of 2017 that showed that 97% of voters wanted Puerto Rico to become a state, but only 23% of registered voters cast their ballots. A broader statistic shows about 54% of all people in Puerto Rico want statehood. Sufficed to say, there exists internal conflict in Puerto Rico about their identity as the last US territory with US citizen birthright to not be fully incorporated as a state into the USA. This problem has been further exacerbated by the debt crisis in early 2017 with outstanding bond debt at $70 billion and their unemployment at 12.4%. If this were not enough, Hurricane Maria caused devastating damage to Puerto Rico’s infrastructure (especially electric power) that to this day has not been fully repaired.
With all of this in mind, we now understand that Puerto Rico is in a state of precarity economically and socially, and this tax plan could only make things worse. Under previous conditions, Puerto Rico was categorized as foreign for tax purposes and was therefore a hub for US based corporations to set up shop to evade taxes that they would have to pay here. As a result of all of the business in Puerto Rico, 30% of the GDP is dependent on these companies and one third of the island’s revenue comes out of the 4% toll gate tax that they pay to the Puerto Rican government in arrangement with the IRS. (thehill) Puerto Rican Governor Ricardo Rosselló argued that the tax law would lessen Puerto Rico’s competitiveness in a time of crisis (Economic Depression & Hurricane). He and other advocates for Puerto Rico want the island to be recognized as domestic. With the new bill, companies that may have moved their business to Puerto Rico for tax purposes will probably reconsider. That being said, US subsidiaries that are currently operating on the island will not necessarily move away. Senator Rubio gave his two cents in an interview at the end of 2017, “We’ve not heard from a single company, and in fact, every one of these entities involved in Puerto Rico has told us they’re in favor of the tax bill, and a few have told us — especially on the pharmaceutical side — that their general sense of it is that moving would make no sense, because it’s not clear that there’s any other jurisdiction in the world that’s more advantageous logistically and from a tax perspective.” Although what Rubio said may be true, it is undeniable that even if the tax bill doesn’t force companies to leave, the companies will still get hurt, and therefore the financial power of the area.
At the end of 2017, the house also unveiled a massive $81 billion dollar disaster relief plan that includes Puerto Rico’s hurricane wreckage in its description. This relief is needed heavily in Puerto Rico. But, according to foreignassistance.gov, the US only gave one million of that aid to to Puerto Rico in all of 2017, even though …. . This seems low compared to other Latin-American countries. Perhaps Puerto Rico’s status as a US territory makes it often overlooked as a sink for assistance funds unless a hurricane or huge natural disaster happens. In the years to come, we will get to see how this new tax plan towards Puerto Rico actually affects our neighbor in the Caribbean. This is another interesting stride in the relationship between the United states and Puerto Rico. The world is watching.
Written by Grant Kelly. Grant is a Computer Science Major at the Univeristy of Pittsburgh. After graduation he plans to find a job in the software development industry and be a productive member of society.