Statehood would dramatically weaken Island’s economy, federal budget
Washington, D.C. – Today, the U.S. Government Accountability Office (GAO) released a study on the effects of Puerto Rican statehood on U.S. federal spending and revenues. The non-partisan report concludes that if Puerto Rico were to become the 51st state, it would cause the loss of tens of thousands of jobs, and would make it difficult for the Commonwealth to balance its budget. In addition, GAO concluded that the imposition of additional federal taxes in Puerto Rico would burden the Island’s residents, as well as harm the economy of both the U.S. and Puerto Rico.
“The GAO’s findings are very concerning for Puerto Rico, our economy and jobs. The enormous tax burden that Puerto Ricans would be forced to shoulder as a state would be incredibly damaging to our economy, our businesses and the workers on the Island,” said Governor Alejandro García-Padilla. “This report also clearly states that statehood will make it very difficult for the Commonwealth to move its economy forward. Ultimately, statehood is a losing proposition for both Puerto Rico and the U.S. My administration is hard at work continuing our plans to grow the economy, create jobs, reduce crime, and keep our fiscal house in order.”
The report notes that: “according to tax policy experts at the [U.S.] Department of Treasury and the Joint Committee on Taxation, changes in federal income tax requirements under Puerto Rico statehood are likely to motivate some corporations with substantial amounts of income derived from intangibles (and therefore mobile) assets to relocate from Puerto Rico to a lower tax foreign location.” The GAO further states that the possible relocation of these corporations could result in federal revenue gains in the range of negative 0.1 billion to 4.3 billion, which hardly offsets the $5.2 billion in new federal spending under statehood.
While the report finds that Puerto Rican statehood would lead to increased federal funding, the broader implications are that the middle class will be eliminated by the increased tax burden and the loss of manufacturing jobs. And the economy of Puerto Rico will be increasingly dependent on federal transfers.
The GAO report published today comes at a time when Senator Martin Heinrich (D-NM) and Resident Commissioner Pedro Pierluisi have introduced parallel bills in the House and Senate that call for a “yes or no” vote on making Puerto Rico the 51st state, despite the fact that a majority of Puerto Ricans have never voted in favor of statehood. On November 2012, 1.9 million Puerto Ricans voted on the Island’s status, with only 834,191 (44.4 percent) voting for statehood. The Governor has said he supports a fair and inclusive referendum following the guidelines of President Obama’s $2.5 million proposal, which was signed into law as part of the Consolidated Appropriations Act of 2014.