Posted on 05/14/2016 10:18:41 AM PDT by ChessExpert
The island’s troubles have their origin in an era of corporate tax incentives in the 1970s that exempted firms from paying federal taxes on profits earned in Puerto Rico. This was done to prevent tax-allergic American companies from setting up shop outside the country. Pharmaceutical, textile and electronics companies flocked to the island to spark a manufacturing boom that lasted for around two decades. In 1996, the American government, under the Clinton administration, started weaning Puerto Rico off these tax breaks to offset some of the country’s federal deficit. The largesse disappeared entirely in 2006 and its economy has suffered since.
(Excerpt) Read more at economist.com ...
No, it’s quite clear and in this case the Economist is perfectly correct.
The Feds made PR a federal tax shelter, giving the PR govt a large revenue stream from companies relocating from the mainland, so the PRs took advantage of the increased local tax revenues and increased public spending. The Feds took away the tax shelter and the extra revenues went away, but the PR govt kept on spending, borrowing lots of money to keep it up. Now they’ve just run out of credit.
Any government big enough to give you everything, is big enough to take it away. Political theory demonstrated in real time. Very few governments on any level plan for a rainy day.
Oops, forgot the /sarc tag....
I also forgot to include the Cuban, Venezuelan, Brazilian, Argentinian, Bolivian, Columbian, Peruvian advisors....
And Bernie.
Right - their massive spending had little to nothing to do with the economic collapse....
True enough, having a lower tax rate than others provides a competitive advantage.
The US has to compete also. We currently have higher corporate tax rates than many countries.
In general, people and companies try to avoid taxes. This can be done through relocation. If I remember right Bjorn Borg and the Beatles either left their home country, or threatened to over taxes. Companies can incorporate in another state/country, relocate offices, shift work to foreign subsidiaries, subcontract, etc. for various reasons, including reducing the tax bite. Relocation is just one of the ways one can avoid taxes.
What happens if high taxes are inescapable? The American slave had a reputation for being stupid and lazy. The collectivized soviet farm worker had a reputation for being stupid and lazy. In each case, there was little positive incentive to work. I think each demonstrated shrewdness in coping with their respective form of slavery. They put their minds to work, to avoid work. Why do your best for others, if it doesn’t pay?
They spent money that they didn’t have.
Sounds like a good book and a valid conclusion. It is a response to many who have argued otherwise.
I suggest that, over the long term, culture follows economics. Any people will shift from work to welfare if work is overly penalized and welfare too generous. The opposite is also true.
1. Socialism
2. Corruption
Or do I have those in the wrong order?
The American slave, oddly enough, didn’t have a reputation for laziness, back in those days. People were willing to pay huge amounts for a sturdy slave. IIRC in the 1850s we are talking median present day prices around $100,000.
Having spent decades following “development economics”, and its failure to explain or solve anything, I am more inclined to think the opposite. Culture drives economics.
Provocative books
“ Hive Mind” Garrett Jones
“IQ and the Wealth of Nations” Lynn
Agreed on both counts.
No mention of the US Navy anywhere. Was its effect insignificant?
Parallel to phasing out incentives, they brought in NAFTA which created incentives to move in another direction.
Double whammy.
Can’t incur debt if you don’t spend. That’s why they’re in trouble. Limit your debt to about 10% GDP to maintain your credit. When income (taxes) don’t cover the budget and you’re already at 10%, cut spending, don’t borrow more.
But, just like on mainland U.S., cutting spending never happens.
democrats run it................. end of story
Puerto Rico put in some environmental laws several years ago that closed several power plants on the southern side of the island. I think that has a lot to do with it.
Because it’s full of Puerto Ricans.
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