The myth of the economic miracle of statehood

Listening to statehood supporters it seems they are selling a type of socialist statehood, that statehood for Puerto Rico means that we get a part of oil production from Texas, part of the proceeds from Hollywood, the economic bonanza from Wall Street and from Orlando’s tourism. That hollow rhetoric is repeated with even more insistence now as a response to our crisis.

Since I can remember I’ve heard statehood supporters compare the economy of Puerto Rico with the economy in Mississippi, to say that ours is much poorer than “that of the poorest state in the nation”. That pro-statehood affirmation always leads me to questions they never answer: Why do the years pass and Mississippi is still the poorest state? Is it possible statehood hasn’t worked for Mississippi? The answer is simple: statehood is not a model for economic development. Statehood is simply a way to organize a federation.

What statehood does in fiscal and economic matters is apply uniform rules of the game to the fifty states. If anything, the new federal control board and statehood share is that neither has elements of economic development.

The premise of the “miracle” of statehood is that the application of federal programs will mean a bonanza for Puerto Rico, but the unequivocal response to this statement is in the GAO (Government Accountability Office) report of 2014 and that, curiously, in the middle of our crisis, no statehood supporter cites.

On the new federal funds that Puerto Rico would receive as a state, the report estimates $5,200 million annually, an amount that is in fact less than what the island received in 2009 from Obama’s stimulus bill, when by way of ARRA funds Puerto Rico received $6,887 million, and we all know the minimal effects of this money on our economy.

But were the stark reality of statehood lies in the GAO analysis on the federal taxes we would pay. The GAO estimated that with statehood individuals and corporations would pay $7,200 million in federal taxes in one year. Bottom line is, we would give more than we receive. What GAO does not say, but is easily verifiable with the official numbers is that in a similar fiscal year individuals and corporations would pay the Puerto Rico government $4,170 million in taxes, considerably less than what we would have paid under statehood. Statehood would mean an increase of at least 72% in income taxes for the productive sectors of Puerto Rico. To that already devastating number, we must add that the report makes that estimate taking into account the exodus of a high portion of the American industries currently in Puerto Rico, which according to the GAO would abandon the island to avoid paying federal taxes.

In simple terms, that 72% increase or additional $3,030 million, would be paid by Puerto Rican individuals and corporations, and on top of that, we would have to deal with an increase in unemployment generated by the departure of American industries and with finding the resources so the Puerto Rico government can operate, numbers that are not included in this calculation.

Puerto Rico is experiencing moments of deep economic and fiscal crisis. We need profound structural changes. But it is evident that statehood is not designed for Puerto Rico and does not benefit Puerto Ricans. We need to soon enter into a profound and serious discussion of what are our real alternatives.


Originally published by El Nuevo Día online. Translated by Gabriela Acevedo Gándara.