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New analysis produced by the Joint Committee on Taxation (JCT) finds that extending the American Rescue Plan’s (ARP) Child Tax Credit (CTC) expansion would result in costly economic consequences.

Last year’s CTC expansion increased the credit up to $3,600 per qualifying child (from $2,000), including a bonus for children under six years old. The expansion also eliminated the income (read: work) requirement and allowed the full value of the credit to be refunded. This ensures that the tax “credit” functions more like a welfare program administered through the tax code.

That’s even harder than it sounds. Puerto Rico would have to stabilize its existing, oil-burning generators while simultaneously building out the supergreen ultraresilient grid of the future … while also dealing with billions of dollars of debt, worries that bondholders will take money meant for hurricane relief, an inability to attract new capital, and a bankrupt Prepa. Right now Puerto Rico has no regulatory structure to understand who will own solar microgrids, how they’d connect to the existing grid or the grid of the future, and how to make sure their owners don’t price-gouge their users. “I’d like to imagine that everyone believes that we need an electricity system in Puerto Rico,” Fisher says. “But it appears from the outside that there’s a lot of political infighting about who will take charge of the process.”

Engineers love a chance to fix a problem. But these challenges are borne of failure and incompetence. It’s fine to celebrate technical improvisation—people cobbling together battery-powered refrigeration for their insulin and tech companies donating solar panels and battery systems. I’ve done some of that lionizing myself. But those kind of stories also tacitly accept the lack of a formal infrastructure—and in one possible timeline they enable privatization. Indeed, privatizing Prepa is already a possibility. The risk is that cheering on high-tech fixes (instead of embracing a big plan like the one in the New York report) will give a weak, cash-poor government cover to corporatize the grid instead of fixing it.

A recent National Bureau of Economic Research report on Section 936, the tax law that gave U.S. multinational corporations enormous tax breaks in the 20th century, has drawn some questionable conclusions.

“US Multinationals in Puerto Rico and the Repeal of Section 936 Tax Exemption for U.S. Corporations” by Zadia M. Feliciano and Andrew Green argues that the repeal of Section 936 decreased average manufacturing wages by 16.7%, and also reduced the number of manufacturers in Puerto Rico by 18.7% to 28.0%.

10. Statehood could lead to a loss of culture. There are many on the island who are concerned that becoming a state would require them to lose their heritage. It would definitely stop the conversation of eventually becoming an independent country. Even though there are not complete U.S. rights for these citizens, they still receive more privileges than other territories under the supervision and control of the federal government. Some residents believe that maintaining the status quo of independence is off the table is the best option because it would allow them to operate with some continuity without losing their identity in the process.

Puerto Rico currently participates in the Olympic Games as an independent nation. Other competitions, such as the Miss Universe Pageant, give the island a similar status. If the U.S. were to convert this territory into a state, then all of its competitors would be forced to compete under the Stars and Stripes instead of their own flag. There are Puerto Ricans who have medaled for the U.S. in the Olympics in the past, but statehood would remove the choice of self-representation for good.

While the local population continues to dwindle, Rosselló’s government is courting new “stakeholders” to come to Puerto Rico under Act 20/22, a pivotal piece of legislation that allows wealthy transplants to use the territory as a tax haven. Passed in 2012, Act 20/22 was established to bring capital investment to the island amid fiscal crisis. The law originally carried certain restrictions requiring direct capital investment and job creation. Under the current administration, however, these rules have been lifted. Now, any individual who spends half the year on the island can receive exemptions from federal and local taxes, capital gains tax, and taxes on passive income until the year 2035, regardless of whether they generate employment or invest in the local economy. Originally designed to attract wealthy financiers, the law has ended up luring tech entrepreneurs, cryptocurrency devotees, digital nomads, and tax dodgers who choose their countries of residence based on economic incentives, regulatory freedom, and “value opportunities”—rather than on cultural or political ties. Puerto Rico’s status as an unincorporated US territory suits these untethered entrepreneurs. As neither a nation nor a US state, it allows arrivals to retain their US citizenship while benefiting from the legal ambiguities of territorial status.

11. Statehood could result in a loss of tourism money. Part of the reason why Puerto Rico is a prime tourism destination for Americans is the fact that costs are lower than other tropical destinations. If statehood were granted, then the economic conditions would improve over time to negate that advantage. Visiting the island state would be similar to the experience of traveling to Hawaii for many families. Even though the beaches might still seem exotic, there would be a loss of its rustic appeal that would make a holiday here less affordable than ever.

4. Statehood would mean the citizens would start paying federal taxes. One of the issues that sometimes holds Puerto Rico back from the idea of statehood is the fact that any resident who lives on the island does not pay a federal income tax to the U.S. government. Workers are responsible for payroll taxes to help fund Medicare and Social Security. There is only limited funding for food stamps, Medicaid, and other benefits that most Americans take for granted. The sales and use tax rate in the territory is 10.5%, but Puerto Rico’s income tax is only 4%. There are no taxes on dividends either or are there any capital gain taxes to worry about when living on the island. Shifting to statehood would likely change this format, which could limit future business opportunities.

(8) "United States", where used in the territorial sense, means the several States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, and American Samoa.

SAN JUAN — In Puerto Rico, March 2 marks the anniversary of when, in 1917, the U.S. Congress granted U.S. citizenship to anyone born in the islands. But for some Puerto Ricans, American Citizenship Day is a grim reminder of the unequal citizenship rights that deny them access to federal disability benefits because they are residents of Puerto Rico.

Supplemental Security Income, or SSI, is a monthly payment system meant for low-income U.S. citizens or nationals who are disabled or above the age of 65. It is available to people living in the 50 states and Washington, D.C., but not to people living in U.S. territories like Puerto Rico and American Samoa.

Justice Gorsuch too positions his concurrence to address what he sees as the need to undo the court’s earlier precedent on race. But here, unlike any of the other opinions authored in Vaello Madero, Gorsuch speaks directly to the Insular Cases. In a strongly-worded opinion, Justice Gorsuch derides the Court’s interpretation in those cases asserting that: “[they] have no foundation in the Constitution and rest instead on racial stereotypes. They deserve no place in our law.”27 Despite this strong rebuke, Gorsuch sides with the Court’s majority explaining that, “[b]ecause no party asks us to overrule the Insular Cases to resolve today’s dispute, I join the Court’s opinion. But the time has come to recognize that the Insular Cases rest on a rotten foundation.”28 While failing to protect the equal rights of Puerto Ricans to access benefits on the same terms as other U.S. citizens in this case, Gorsuch concludes that “[o]ur fellow Americans in Puerto Rico deserve no less.”29 Given the importance of Gorsuch’s arguments for overruling the Insular Cases, his assertion of what U.S. citizens in Puerto Rico “deserve” is downright confusing. In fact, he has joined the majority to assure that what Puerto Ricans deserve is less federal public assistance. Despite their different takes on the Court’s earlier racial discrimination precedents, Justices Thomas and Gorsuch share another similarity in their opinions. Neither opinion deals at all with the specifics of this case. Neither Jose Luis Vaello-Madero, nor the facts of his claim, register in either concurrence.

Taken together, the opinions in Vaello Madero combine to further insulate the Insular Cases from direct overruling while practically affirming Puerto Ricans’ second-class citizenship.30 Justice Sotomayor is the lone voice in relating the facts that make Congress’s lack of assistance through SSI cruelly irrational: 1) while only 34,224 were enrolled in Puerto Rico’s less generous Aid to the Aged, Blind, and Disabled program in 2021, “the Government Accountability Office estimates that over 300,000 Puerto Rico would have qualified for SSI”31; 2) “Puerto Rico has a disproportionately large population of seniors and people with disabilities”32; 3) “43.5% of residents of Puerto33 Rican residents [sic] lived below the poverty line – more than triple the national percentage of 12.3%”; and 4) residents of Puerto Rico do not have voting representation in Congress [so] they cannot rely on their elected representatives to remedy the punishing disparities suffered by citizen residents of Puerto Rico under Congress’ unequal treatment.”34

The Puerto Rico Status Act, which seeks to resolve its territory status and its relationship to the U.S. through a federally binding plebiscite, was reintroduced in the House on Thursday.

Even though the House passed the bill in December, the Senate never scheduled a floor vote for it, effectively restarting the process of getting the act approved under a new Congress.

The first, and most simplistic option, is for Congress simply to pass legislation that extends the “procedural” rights to the territories.175 This would entail the least change to the current system, and would not extend citizenship to those thought “unfit” to receive it.176 As the Court has pointed out in the Insular Cases, Congress has always retained the right to extend the protections of the Bill of Rights to the territories.177 Although these rights have never actually been implicitly extended by Congress, insular cases such as Balzac v. Porto Rico, have concluded that the creation of a Bill of Rights for Puerto Rico in the Jones Act justifies the conclusion that the federal Bill of Rights does not apply.178 Passing legislation that unambiguously extends procedural rights to territories would be the easiest and least controversial solution to apply.179 It would be the easiest solution to apply since it would only require Congress enacting new legislation that would clearly extend constitutional Fourteenth Amendment provisions to Puerto Rico.

But the Puerto Rican economy does matter for the United States – and particularly for U.S. security. Given the island's proximity and ties to the United States – not to mention the perennial (and highly controversial) debate over Puerto Rico's status as a U.S. commonwealth and the ease of entering the United States once on the island – drug trafficking and violent crime in Puerto Rico have direct implications for U.S. security policy in the region. In the absence of a healthy economy and given the shrinking private sector in Puerto Rico, the growth of informal activities – drug trafficking and organized crime chief among them – Is the unfortunate consequence. In 2011, Puerto Rico saw a record-breaking 1,136 murders. According to the World Bank, in 2010 its per capita murder rate exceeded Mexico's by nearly 15 percent-and was almost 500 percent higher than that of the mainland United States. According to Estudios Tecnicos, a leading economic planning and consulting firm on the island, Puerto Rico, the so-called third border of the United States, brought in an estimated $5 billion in drug-trafficking activity in 2011, comprising an enormous 10 percent of the island's gross domestic product (GDP). In contrast to patterns along the U.S.-Mexico border, cocaine is the island's greatest drug threat-and trafficking of the drug is on the rise, with cocaine seizures in the region doubling from 2009 to 2010 alone. While 7 percent of U.S.-bound cocaine was trafficked through the Caribbean in early 2012, a full 14 percent came along Caribbean routes in early 2013. What is to blame for the violence and crime plaguing Puerto Rico? The answer to that question is complex. But the island's economy, currently suffering through a deep, grinding recession, is certainly among the key factors. Illustratively, Puerto Rico's debt- to-income ratio is nearly 83 percent-almost 14 times the same measure for New York, California, and Illinois. Puerto Rico's economic woes, particularly in combination with the political establishment's inability thus far to solve them and the ongoing debate over the island's legal status, leave in question what can be expected on the island moving forward, and what its government can do to get the island back on track. And though U.S. attention typically focuses on whether Puerto Rico should remain a U.S. commonwealth-or instead become an independent nation, a sovereign state in free association with the United States, or the fifty-fust state – it is solving the country's economic struggles, not its legal status, that will mean most for U.S. security moving forward. Though the media have paid some attention to Puerto Rico's economy in recent months, there remains a lack of awareness of the implications of the island's crisis for U.S. security. That issue can hardly be overstated. Whatever the nature of Puerto Rico's economic woes, their implications for U.S. drug policy and security are significant. By helping Puerto Rico patch together its broken economy, the United States can head off the serious security threats increasingly emanating from the island. Hoping to raise awareness on this issue, I brought in Jose J. Villamil, the leading Puerto Rican economist looking at these issues, to write this report, which provides an analysis of the challenges the island currently faces and what needs to change moving forward.

What is the island’s economic outlook? Puerto Rico continues to be ravaged by a sustained recession. Annual economic growth fell by roughly 12.5 percent overall between 2004 and 2020, while Puerto Rico’s population shrunk by more than 16 percent. It has also struggled under a large public debt in recent years, totaling about $70 billion—or 68 percent of gross domestic product (GDP)—in 2020. Puerto Rico’s downward spiral has been compounded by natural disasters, government mismanagement and corruption, and the COVID-19 pandemic. Unable to borrow on global markets, Puerto Rico was in economic limbo for years after turning over its budget to an independent control board appointed by Washington as part of a plan to restructure its debts. Making matters worse, in 2019, U.S. authorities arrested former high-level officials in a corruption scandal, leading to the resignation of Governor Ricardo Rosselló. The island’s average household income is about one-third of the U.S. average, and its poverty rate is more than twice that of the poorest state, Mississippi. Meanwhile, the territory’s unemployment rate has stayed at almost twice the national average for the past decade, at times reaching double digits. However, it fell to about 8 percent in 2021 and has continued to drop. What has driven the crisis? Experts say the island’s economic crisis is rooted in [PDF] twentieth-century legislation that encouraged Puerto Rico’s reliance on debt to fill federal funding gaps. It did this by giving bond investors higher returns and loosening borrowing limits. Since 1917, lenders to Puerto Rico have been exempt from local, state, and federal taxes—the so-called triple tax exemption—effectively boosting their profits and making the island a more attractive investment. The territory’s constitution also allows Puerto Rico to balance its budget with its debt, among other provisions that facilitate borrowing. The debt problem accelerated after 1996, when the U.S. government began phasing out Internal Revenue Code Section 936. This provision had allowed American businesses to operate tax-free in Puerto Rico, which critics viewed as a windfall for wealthy corporations. Section 936’s repeal triggered a deterioration of Puerto Rico’s manufacturing sector, and the territorial government increasingly turned to debt to cover its spending. The 2008 global financial crisis hit Puerto Rico especially hard, with the recession further lowering tax revenues, souring an early-2000s construction boom, and giving investors pause. The territorial government implemented austerity measures, including layoffs of public workers, that sent unemployment soaring. It also crafted dubious deals to balance its budget, including letting government agencies borrow from one another to pay back bonds. On top of that, experts say, much of this money was poorly spent. Leaders failed to parlay the billions of dollars they borrowed into strong institutions, a deficit laid bare by the natural disasters that have devastated Puerto Rico’s underfunded and poorly maintained infrastructure. Hurricane Maria brought ruin to the island in 2017, causing about three thousand deaths [PDF], knocking out the electrical power grid, and costing tens of billions of dollars. An earthquake at the start of 2020, the island’s strongest in a century, also created a power blackout. Months later, the pandemic exposed the territory’s disjointed and inefficient health system, which critics say has impeded care for COVID-19 patients. In September 2022, Hurricane Fiona triggered severe flooding and mudslides and knocked out power to more than one million homes and businesses. The combination of government mismanagement and unrelenting natural disasters has driven an exodus from the territory, further depressing economic activity, crippling schools and other institutions, and leaving fewer taxpayers to shoulder the debt. More than 130,000 residents fled to the mainland after Hurricane Maria alone. Today, more people of Puerto Rican descent live on the mainland than on the island, and a 2019 study projected that the territory’s population would fall by another 8 percent [PDF] by 2024. How has it dealt with the debt crisis? Since it began defaulting on major debt obligations in 2016, Puerto Rico has struggled with how to pay its creditors—many of whom hold bonds that are protected by Puerto Rico’s constitution—while maintaining basic public services and avoiding an even deeper economic collapse. It took more than five years of negotiations for a federally appointed oversight board to approve a restructuring plan, and controversy persists. As a territory, Puerto Rico’s options were limited from the beginning. It could not receive assistance from the International Monetary Fund, like insolvent countries such as Greece have. Neither could it file for Chapter 9 bankruptcy, which municipalities such as Detroit have used to receive legal protection against creditor claims while restructuring their payments. Then there is the sheer size of the debt: Puerto Rico’s is by far the biggest government bankruptcy in U.S. history. The island’s legislature tried to design its own restructuring process [PDF], which would have allowed public services to continue uninterrupted while it negotiated lower debt payments, but the U.S. Supreme Court rejected the law. Congress and President Barack Obama’s administration drew up an alternative plan, the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). Most notably, PROMESA created a seven-member financial oversight board appointed by the White House that was granted full control of Puerto Rico’s finances. It also created a debt restructuring process similar to Chapter 9 that governed negotiations with creditors to reduce debt payments. Those negotiations were beset by controversy, as it became clear that all involved—bondholders, Puerto Rican pension funds, and other public services—faced steep losses. Several versions of a sweeping plan to cut the island’s debt were floated, but creditors promised legal challenges, and efforts were paused due to the COVID-19 pandemic. In January 2022, a federal judge approved a final plan between the PROMESA board and Puerto Rico’s government, paving the way for the island to escape bankruptcy and resume making payments to creditors. The deal cuts $33 billion in total debt obligations down to $7.4 billion, lowering Puerto Rico’s annual debt payments from nearly $4 billion to just over $1 billion. Supporters say the deal puts the island on a sustainable path while avoiding any cuts to public pensions, which had been a major point of contention. However, critics are wary of the resolution. Some argue that cutting debt without requiring deeper structural reforms means problems are likely to repeat. Others worry that maintaining pension obligations—which amount to $2.3 billion yearly—will prove unsustainable. Advocacy groups such as the Center for Popular Democracy say the deal will result in more economic austerity, including cuts to health care and education. They echo many critics who oppose the PROMESA process on the grounds that it undermines the territory’s already weak self-rule. PROMESA’s oversight board will remain in place until Puerto Rico meets several financial milestones—three more years at least. Meanwhile, experts have suggested that Puerto Rico’s restructuring experience could be a test case for heavily indebted U.S. states such as Illinois and New Jersey, which are also constitutionally ineligible for bankruptcy protections.

The Supreme Court denied an effort Thursday to require certain Social Security benefits also go to Puerto Rico residents, in an opinion that points to Congress’ broad constitutional power over the country’s territories.

The 8-1 decision keeps Puerto Rico residents from receiving Supplemental Security Income for aged, blind and disabled individuals, under a 1972 law that made U.S. residents eligible for the program but not residents of the territory.

Within the beautiful and idyllic landscape of Puerto Rico, where tropical beauty intertwines with vibrant culture, a tale of two islands unfolds. If we were to draw an imaginary blue line from Manatí down to Juana Díaz, we would realize that the median household income to the west is as low as $22,419. In contrast, in Puerto Rico to the east of the line, the median household income is as high as $32,949, and in the San Juan and Guaynabo area as high as $43,479.

Beneath the shimmering surface of the paradise we call home, an undeniable chasm separates the haves from the have-nots. Like dark clouds overshadowing the Island's potential, income inequality and poverty cast a shadow on countless Puerto Ricans' lives.

Almost two dozen amicus briefs have been filed with the U.S. Supreme Court in the past 10 days in favor of granting Supplemental Security Income benefits to Puerto Ricans and other territorial residents, with oral arguments set for Nov. 8.

Providing the payments would mean an additional $1 billion in federal transfers to Puerto Ricans each year, which could help the Island's economy, the Puerto Rico Oversight Board has said.

The government of Puerto Rico is diverting its already limited near-term resources to relief efforts focused on saving lives and repairing critical infrastructure. Governor Rossello’s team has announced that it faces a liquidity crunch as soon as the end of October, prompting an additional request of $4.6 billion in immediate relief. And the impact of Maria on the economy for years to come is likely to be substantial. An analysis by Solomon Hsiang and Trevor Houser evaluates 1,300 major storms since 1950, and they estimate an expected drop in per capita GDP in Puerto Rico of 21 percent, a shockingly large number. There is no doubt that the Oversight Board and the Governor must revise the fiscal plan by reducing the economic projections, accounting for the near-term shift in resources, and revising downward the government’s expected revenues. In addition, that revised plan should reassess the wisdom of austerity measures in the face of dramatic and urgent critical needs, ensuring sufficient resources for ongoing disaster relief efforts while avoiding unnecessary harm to an already fragile economy. Three actions needed by the U.S. Government The risk of outmigration to Puerto Rico’s future prospects is profound. If hundreds of thousands of Puerto Ricans choose to leave rather than to rebuild, it will reduce the future potential recovery for the island, make it more difficult for the government of Puerto Rico to right the ship, and make it harder for those who choose to stay behind. Today, nearly all of Puerto Rico’s 1,300 schools are closed, leaving parents to decide whether to sacrifice as much as a full year of their child’s education or move to the mainland. A clear and immediate strategy is needed, and central to that strategy is the federal government taking the following three steps this year. 1. Announcing a sustained commitment to Puerto Rico’s future. A clear and public bipartisan commitment from Congress and the Administration to the long-term rebuilding effort is needed immediately. That commitment should include a commitment to a specific timeline for legislation and a framework around the types of federal support that will be provided, separate from the billions in near-term disaster relief being currently debated. This type of bold commitment is necessary to restoring hope to many currently considering whether or not to move, which would mitigate the risk of mass out-migration. If the devastation of Maria happened in Florida, there is little doubt that we would see such a bold commitment, but Puerto Rico is different. Americans living in Puerto Rico face different rules in many federal programs and laws and exert less political clout, being represented by the Commonwealth’s non-voting Resident Commissioner in the U.S. House of Representatives. In fact, a poll reported that only 54 percent of Americans recognized that people born in Puerto Rico are citizens. Uncertainty about the resolve of the federal government to provide ongoing support only increases the incentive for Puerto Rican families to leave. American Airlines announced that all tickets leaving San Juan are only $99.

SSI is a nationally-applicable program that provides benefits and support for seniors and people with disabilities with limited means. Eligibility should be solely based on one’s disability and financial means, but as Vaello-Madero learned, it also is dependent on where one lives. The law extends benefits to residents of all 50 states, and to residents of the Northern Mariana Islands, a U.S. territory. But it denies assistance to the elderly and people with disabilities who happen to live in Puerto Rico or any other U.S. territory—even though most of them are U.S. citizens and all are entitled to equal protection under the Constitution. In denying Puerto Rico residents access to SSI benefits, Congress continues a troubling and discriminatory pattern of affording residents of U.S. territories—overwhelmingly, people of color—second-class status. Congress, for example, also disfavors residents of the territories access to Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding. Residents of U.S. territories are also often on the losing end of receiving emergency funding like the federal Coronavirus Relief (CARES) law or funds to rebuild after a devastating hurricane like the one that hit Puerto Rico in 2017. In the Supreme Court, Vaello-Madero argues that denying him benefits simply because he now lives in Puerto Rico rather than New York is unconstitutional discrimination. His needs are exactly the same, whether he lives in Brooklyn or San Juan. And as a U.S. citizen, he is entitled to equal protection of the laws. However, the United States argues that the only way for Mr. Vaello-Madero and other residents of the territories to remedy this discrimination “is action by Congress.” But that reasoning ignores the fact that residents of the territories have virtually no real representation. In the Senate, they have no representation at all. In the House, residents of the territories have only a single non-voting delegate. People like Mr. Vaello-Madero cannot “resort to the polls” “for protection against abuses by [the] legislature.” Living in a territory the United States has held in limbo for over a century, representation in Congress remains closed to them by constitutional design.