Following the Money: Would Statehood Be a Better Investment for the U.S.?

Puerto Rico rejected continuing as a territory and chose statehood in the 2012, 2017, and 2020 plebiscites. Polls in the states and on the Island continue to show that statehood is the most popular option for Puerto Ricans and for Americans in general. Yet interests that profit from the current undemocratic position of Puerto Rico continue to block the equality for which Puerto Ricans voted.

One of their arguments is that equality within the country would impoverish Puerto Rico and be costly for the Federal budget.

The same kinds of arguments were made for a number of the existing states. At the time, the federal government paid for the governments of territories but not of states. Several states had anti-statehood factions that claimed being a state would be too expensive.

In fact, no state is worse off as a state than it was as a territory.

How is Puerto Rico doing right now?

If Puerto Rico were an independent nation in the Caribbean, it would be doing well compared with its neighbors. Of course, if it actually became an independent nation, it would not have the kind of financial support it receives now from the United States. So when we think about whether Puerto Rico should worry about its economy under statehood, we should compare the Island with the current 50 states.

Unfortunately, the laws that have flowed from territory status have left Puerto Rico underdeveloped and relatively poor. The laws have favored corporations, not local entrepreneurs. This can be no surprise, since Puerto Rico has so little say in the laws of the nation. The economy has underperformed that of all the states for four decades — not just during the depression that began in 2006.

There are not many more than three million people of Puerto Rican heritage left in Puerto Rico — compared with over five million in the states. Millions voted with their feet by moving to a state for a better life.

About 45% in Puerto Rico still live below the poverty level, and a majority of Puerto Rican children do. The poverty rate is almost twice the rate among people of Puerto Rican origin in the states.

Labor participation is very low, mostly for lack of jobs. For those who work, wages are lower, even in skilled occupations, than in the states. A much higher percentage labors at minimum wage.

And yet the cost of living is higher than almost all of the rest of the nation.

Per capita income remains a third that of the states on average and half that of the poorest state. Household income in the territory is about half that of people of Puerto Rican origin in the states.

Puerto Rico’s Gross Domestic Product (GDP) numbers are misleading since a substantial portion of the money measured is only in the territory on paper to take advantage of Federal tax laws. It never circulates in the insular economy.

If being a territory were good for Puerto Rico’s economy, things would be going better than they are now.

From Spanish colony to U.S. territory

Becoming a U.S. territory helped Puerto Rico’s economy grow — but only so far. And continuing territory status cannot do more.

Changes in national and international laws and economic factors have left the territory behind. These broad changes in society and economic reality will not be reversed and are not going to be altered for the benefit of Puerto Rico.

Further, as a territory Puerto Rico cannot have the tools needed to catch up to the rest of the country and much of the world as it develops.

The economics of territory status are now indisputably bad.

Its different treatment in Federal law benefits the few at the expense of the many. People from the rest of the country determine its treatment. Puerto Ricans do not have a real say.

From U.S. territory to U.S. state

Statehood would automatically inject about $9 billion a year of federal funds into Puerto Rico’s economy. This money would be used where it is needed most and mostly be spent locally.

Statehood would also give the territory an economic tool of incalculable value: equal political power in the government that makes most of the laws that govern the economy. Having more clout in Federal decision-making would provide economic transformation.

To begin with, these votes would translate in short order in to more Federal jobs in Puerto Rico and much more Federal purchasing of Puerto Rican products.

The economic benefits would go far beyond those immediate benefits. Puerto Rico would have two U.S. senators, five U.S. House of Representatives members, and seven Electoral Votes in the selection of the president of the United States. Their voting power would help the Island get tax, trade, and program laws changed to meet Puerto Rico’s needs.

Encouraging investment

As the U.S. Government Accountability Office recognized in a recent report, statehood would also encourage investment by providing businesses with a familiar, standard, certain, and permanent legal position, as well as long-term security.

This investment would include Puerto Ricans investing more in Puerto Rico rather than hedging their bets by investing elsewhere.

The congressional investigative arm noted another consequence of statehood that should help grow Puerto Rico’s economy: much greater national attention to, consciousness of, and understanding of Puerto Rico. It would be equally covered in all private as well as public programs instead of often being left out. The examples of the two states most recently admitted into the Union, Alaska and Hawaii, showed how much of a difference this can make. Both saw fast economic growth in amazingly short times after they became states.

Good for the U.S., too

The Federal treasury would benefit even before Puerto Rico becomes more prosperous. Businesses and individuals from the states would not be able to avoid income taxes through Puerto Rico. Multinational corporate entities and the wealthy would pay their fair share to support the government that helps make their incomes possible. This would mean billions of dollars a year for the U.S. treasury.

Initially, the Federal costs would be greater than the Federal benefits when Puerto Rico alone is considered. That, however, ignores the cost to the Federal and state governments of the failing territory economy.

It also does not take into account the prosperity of the future. We cannot imagine that the United States would be made up of 50 economically viable States and one that cannot succeed. Statehood has been an economic boost for every territory that has become a state so far, and many were in much worse positions than Puerto Rico is now.

Some sincerely believe that Puerto Rico should be a separate nation — although the vast majority of Puerto Ricans cherish being U.S. citizens. Independence is a noble aspiration, but it is only shared by a small number of Puerto Ricans.

Thoughtful people, however, cannot honestly think that Puerto Rico as a whole would be worse off as an equal part of the United States than the terrible shape that it is in now.

If their personal circumstances benefit from the current arrangements, they might have to adjust to a loss of their individual or corporate advantages over most Puerto Ricans — and most Americans — but that is a different matter.

Statehood would benefit the territory and the nation economically — as well as democratically. It would be a good investment.

This post was originally written in English and may be being auto-translated by Google.

 

One Comment

Jesus Santiago

The US taxpayers will be on the hook for the extra federal funding money under statehood plus the gringos in most districts in the US will be against statehood as well. The people elect congress so the public will determine if a new state is required. It’s all about the money and who pays for these new taxes and believe in logic the US is not interested in accepting another state. Besides Puerto Rico had its chance in becoming a state when the economy was doing well but that window of opportunity passed the PNP by. But the best reason why the US will not accept Puerto Rico as a state is this the US dollar is in very serious problems. http://www.usdebtclock.org

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