Did you know that wealthy people are able to evade most taxes if they move to Puerto Rico? Did you know Puerto Rico is the only place in the world where Americans can move and not pay federal income taxes, without giving up their US passports? Is your community or state being deprived of tax dollars to fund public services while these millionaires get to pack up and leave to live tax free in the Caribbean? Is this hurting or helping local communities in Puerto Rico? Have you heard of Puerto Rico’s displacement and how this has made it much harder to rebuild after historic natural disasters and financial crisis? Were you aware that crypto investors are exploiting Puerto Rico and making it much harder for average Puerto Ricans to live in their own island nation? As a US colony, Puerto Rico is already at a disadvantage - rich outsiders from the states are making it that much harder.
Why this impacts me?
If you live in one of the 50 states or Washington, DC, rich people from your community may be moving to Puerto Rico to exploit extraordinary tax loopholes - where they not only evade most US taxes, but Puerto Rican taxes as well. When the rich move their residence to tax havens, they deprive your state and local government of the tax revenues needed for your public services. Ironically, the bankrupt US territory of Puerto Rico is also deprived of essential services under this scheme. If you are a boricua* in the diaspora and have loved ones on the island, chances are they live in communities where many are being priced out by outsiders not paying their fair share.
What is happening and who is to blame?
Rich outsiders from the US are moving to Puerto Rico and causing the displacement of Puerto Ricans due to tax loopholes not available to Americans anywhere else on the planet. One particular loophole, PR Act 22, is only available to outsiders, not local Puerto Ricans. You may have seen the crypto community advocating to move to Puerto Rico for tax breaks through well known influencers like Logan Paul. Locals have voiced outrage at their audacious evangelizing, labeling them “crypto colonizers.”
What does change look like?
Our goal is to repeal the Puerto Rican law that invites Americans to move to the island and pay zero US federal income taxes and close to zero Puerto Rican taxes. The repeal can happen if Congress decides to no longer allow Americans that move to the island to avoid paying federal taxes, or if the Puerto Rican legislature passes a law revoking Act 22 (now part of Act 60).
The Displacement Crisis.
Puerto Rico has been suffering an economic crisis since 2006 that, along with a series of natural disasters of epic proportions, have destroyed the island’s infrastructure and caused massive migration. More than 400,000 Puerto Ricans have left the island. And a lack of jobs, housing insecurity, increased cost of living and difficult daily life due to an energy crisis, have made normal life almost impossible.
In 2012, Act 22 was enacted to attract investors to Puerto Rico, hailed as a way to reinvigorate the island which was dealing with multiple crises. But it has had the opposite effect, causing a crisis of displacement. Act 22 allows anyone who has not lived in Puerto Rico from 2006 to 2012 to move to the island and pay ZERO American income taxes and close to ZERO Puerto Rican taxes. This was meant to exclude most Puerto Ricans rom receiving the tax benefit. The recipeints only have to live there part of the year and buy a residence, among other minor requirements. This has attracted millionaires and billionaires seeking to evade taxes. The result: skyrocketing rent and property values that make it impossible for many boricuas to live in their own island-nation. And Puerto Rico is at risk of losing its identity and culture to outsiders with no connection to the island.
Puerto Rico is a US territory that has something similar to a state government with a Latin American socioeconomic culture. Puerto Ricans don’t pay federal income taxes, they get reduced federal funding on health care and food stamps, among others, and don’t vote for the President and Members of Congress that passes laws affecting them. Puerto Rico has basically been a colony for 500 years, the last 126 years under the US flag. The limited autonomy Puerto Rico gained with its Commonwealth constitution was erased in 2016 with the unelected fiscal control board that can veto laws enacted by the island’s democratically elected officials. Essentially, there is little to no democracy in Puerto Rico. Puerto Ricans are U.S. citizens by birth. The island has its own national Olympic team and competes under its own flag in other international sports and cultural events. Spanish is the dominant language in this Caribbean island. But Puerto Rico has no say over its political or economic existence.
In September 2017, two devastating hurricanes ravaged the island. First, Hurricane Irma struck and caused $1.8b in damages. A few days later Hurricane Maria- the deadliest Hurricane of all time - struck and left more than 4,000 people dead, and the island blacked out for over one year, the longest power blackout in US history. Donald Trump threw paper towels and insulted Puerto Ricans while withholding aid and restricting reconstruction funding. Most of the reconstruction has still not taken place, five and a half years after the storms.
The Fall of Governor Rosselló.
Unfortunately Trump wasn’t the only one to blame for the post-hurricane crisis. The Governor of Puerto Rico and his administration also played politics with the aid and mismanaged the situation. Puerto Ricans were outraged, taking to the streets. In the summer of 2019, 1 in 3 island residents protested until Gov. Ricardo “Ricky” Rosselló resigned. Two cabinet officials were arrested by the FBI for corruption. The fire that ignited the movement came from a private Telegram chat that revealed how Rosselló and his team insulted political opponents, the victims of Hurricane Maria and even manipulated reporters to spread false information. For the first and only time in Puerto Rico’s history, the people rose up and forced a governor to resign.
The Power of the Fiscal Control Board.
In 2016, Puerto Rico was running out of money to pay $72 billion in debts. The Puerto Rico Constitution said certain bond holders would be paid first if a situation like this ever happened. Congress not only phased out tax incentives that created most of the island’s jobs; it also took away the island’s bankruptcy powers in the 1980s. This left Puerto Rico between hedge funds who wanted to drain the PR treasury and a Republican Congress unwilling to help.
Instead of auditing the debt, helping Puerto Rico pay its creditors or buying PR debt like the Federal Reserve did for Wall Street after the 2008 crash, Congress and President Obama passed a law imposing an unelected Junta, similar to the Fiscal Control Boards of Washington, DC and New York City and allowing some debt to be restructured. That law is called PROMESA, which in Spanish means “promise.”
The austerity imposed by this unelected board has caused severe harm to working families. The undemocratic nature of the board, appointed by the President and Congress, has also made Puerto Rico’s status as a colony of the US much more apparent in people’s eyes. The board has the power to annul any law passed by democratically elected leaders of the island dealing with fiscal and financial matters. It has even imposed its own version of the budget without the consent of those elected leaders. This is raw colonialism.
The Economic Crisis.
In 1996, Congress eliminated tax breaks that created good paying manufacturing jobs. Internal Revenue Code Section 936 was responsible for 300,000 jobs, significant income that was held in Puerto Ricans banks and for spurring further economic development. Its phaseout, completed in 2006, started the migration crisis, with hundreds of thousands of Puerto Ricans leaving the island as a result. The reduced economy caused the island to over-borrow to compensate for lost revenues.
Puerto Rican bonds are triple tax exempt and were held by institutional investors and pension funds all over the US before the PROMESA law. Many experts believe the law was passed to protect the US financial system from a debt crisis that could have crippled the US municipal bond market. Therefore in 2016, far from intending to help the island, Congress acted to help Wall Street. Politically, this put Puerto Rico back into the direct rule of the US Congress.
Puerto Rico's Power and Energy Crisis.
After Hurricane Maria destroyed the island’s energy grid, a law was passed in 2019 to privatize management of the island’s electric grid. Corruption and conflicts of interest led to the contract being awarded to LUMA Energy, a US-Canadian consortium. Since LUMA took over the Puerto Rican power grid, power blackouts are constant and last much longer. The government’s own statistics show the dismal service is more unreliable now than ever before. While the company has failed consumers, its CEO Wayne Stensby was found in contempt of court and a warrant was issued for his arrest for not sharing public information requested under subpoena by the Legislature. LUMA is responsible for managing $13 billion in US taxpayer funded reconstruction funding of the electric grid. Will LUMA continue to line its pockets or will it help Puerto Rico become a model of resilient and renewable energy?
Washington Has the Power to Fix This.
The PROMESA federal law passed in 2016 gave Congress the power to override financial lawmaking decisions made by the island’s elected leaders. Congress also has the power to oversee the LUMA contract and take the federal reconstruction dollars away from LUMA and give them back to the local communities that can better spend it.
So, Congress has the ultimate power to decide who gets away with not paying federal taxes in Puerto Rico. And guess what? The US law - which was supposedly intended to help Puerto Ricans, is actually just helping rich outsiders evade taxes. Worse, it’s driving up the cost of living and making a homeland uninhabitable to Puerto Ricans. Congress needs to close this loophole, immediately - or else Puerto Ricans are at risk of losing Puerto Rico.
*boricua: a term to describe anyone of Puerto Rican descent.