Puerto Rico has some real advantages when it comes to biotechnology. The Island is the top pharmaceutical exporter in the nation and has numerous FDA-approved facilities.
As American dependence on China and India for medical supplies disrupts U.S. supply chains and threatens security, Puerto Rico should be a tempting place for manufacturers and researchers in the biotech space.
From the manufacturers point of view
Invest Puerto Rico has gathered a number of statistics that are intended to entice investment in biotech in Puerto Rico. The Island has the “6th highest concentration of scientists and engineers in the world ” and is #1 in the U.S. “in concentration of pharma and medical device experts.” 75% of the top Class III medical device manufacturers are in Puerto Rico.
“As a US territory, Puerto Rico offers federal IP protection, regulations, and currency same as the rest of the United States,” says Peter Ruiz of Invest Puerto Rico. “Everything made in Puerto Rico is ‘made in the USA’ by US citizens. ”
Puerto Rico also has real estate available in the form of appropriate buildings or of open space to build.
Finally, and not at all the least of the benefits, Puerto Rico has a population of experienced biotech workers as well as academic institutions capable to training in specialized skills. An educated, bilingual workforce and desirable lifestyle make it easy for corporations to feel confident that they will be able to fill jobs as needed.
From the workers’ point of view
This data may be misleading. Nearly half of the GDP of Puerto Rio is attributed to biotech like pharmaceuticals and medical device manufacturing. However, the GDP shows the monetary value of all that is produced in Puerto Rico. Since corporations use transfer payments to shift the aopoarent production to Puerto Rico, this gives an inaccurate picture of the local economy
The Brookings institution explains it like this: “First, official statistics substantially overstate production of goods and services on the island. The problem arises from section 936 of the U.S. tax code, which provided strong incentives for U.S. corporations to use transfer pricing to shift reported income to Puerto Rico. Profits earned in Puerto Rico are effectively exempt from U.S. taxation… [The use of ‘adjusted’ GDP estimates] cuts the level of Puerto Rican GDP by about 20 percent in 2003 and that of output growth by 0.7 percent a year since 1975. The tax distortion explains much of the growing gap between Puerto Rico’s measured production and national income, and the adjusted data highlight the sluggishness of recent economic performance.”
We’ve explained it in simpler terms.
Basically, corporations can claim that they produce their goods in Puerto Rico, but the income the companies gain from those goods may not contribute to the income of people living in Puerto Rico.
The Nation points out that many of the jobs with the biotech companies are minimum wage jobs, often part time. The tax shenanigans may cause a situation in which bringing biotech companies into Puerto Rico does not actually benefit Puerto Rico.
At the same time, low labor force participation is certainly part of the reason that Puerto Rico’s average per capita income is so much lower than that of the states. Well-paying biotech jobs are advertised in online marketplaces for qualified candidates. At least one study found that the tax benefits have led directly to thousands of jobs with higher than average wages.
Would statehood change this?
Puerto Rico is indeed in a strong position to draw biotech investment. The educated, bilingual workforce is an important asset and the future looks bright.
But it’s necessary to make sure that the situation is a win-win for the investors and for Puerto Rico. That may not currently be the case.
Many states have low corporate tax rates; North Carolina’s is the lowest at 2.5%. Missouri and Oklahoma are both at 4%. Wyoming doesn’t charge any corporate income tax. Puerto Rico would, as a state, still be free to decide what kind of corporate tax breaks to offer companies.
It is Puerto Rico’s territorial status that allows individuals to pay no federal income tax on money they earn in Puerto Rico. Combined with the special breaks provided by the tax incentives for outside investors, Puerto Rico allows entrepreneurs to manipulate their incomes to pay the lowest possible tax rates. Things would change if Puerto Rico were a state.
Without the (probably false) idea that Puerto Rico will only be attractive to investors if it has extreme tax incentives, a state of Puerto Rico would be able to make economic decisions for the good of the Island and its people. Without the uncertainty of territorial status to discourage investors, Puerto Rico might well be able to see the kind of economic development you would expect to see from the statistics listed at the beginning of this article — instead of the cruel poverty level we actually see in Puerto Rico.
Reach out to your congressional representative to encourage a lot for the Puerto Rico Status Act. Puerto Rico should not continue to be a colony.