Act 22 was a Puerto Rico law that gave wealthy individuals the opportunity to move from the states to Puerto Rico to evade taxes. It was folded into the current Law 60, which provides tac incentives for companies and for individuals. The IRS has been investigating individuals suspected of pretending to live in Puerto Rico in order to get the benefits. There are also questions about the value of these tax incentives to Puerto Rico. Now Rep. Chuy Garcia has asked that Act 22 be completely ended.
“Because of Act 22, Puerto Rico is the only place in the United States where a citizen of the mainland can move and not pay a penny in capital gains or federal income taxes, without renouncing their citizenship,” said Garcia on the floor of the House on Monday. “Puerto Rico’s Act 22 tax loophole was sold as an economic boost in the shadow of a recession. Instead, wealthy investors, speculators, and influencers like Logan Paul are part of a new generation of tax-evading gentrifiers flocking to the island and displacing Puerto Ricans.”
Last month, 12 members of Congress requested information from the IRS on their investigation. “The tax haven that Act 22 has created in Puerto Rico has proliferated the use of short-term rentals (“STRs”), increased cash property sales and market speculation, and caused displacement for the Puerto Rican people themselves,” the congressional reps wrote. “Therefore, we consider it essential to understand to what extent the IRS and Puerto Rico’s Department of Treasury are monitoring U.S. individuals and businesses claiming tax benefits under Act 60, particularly as the number of Act 22/Act 60 beneficiaries continues to grow exponentially.”
Pros and cons
Supporters of Act 22 say that it has brought much-needed revenue, development, and new residents to Puerto Rico. While new Census reports suggest that the exodus from Puerto Rico is slowing down, the Island’s population has been dwindling for years. The result has been an aging population, a lack of doctors and other needed professionals, and a shrinking tax base.
In order to benefit from the tax loopholes, beneficiaries of Act 22 must not have lived in Puerto Rico for ten years prior to their move, and they must live on the Island for half the year, buy property, and donate $10,000 per year locally. Members of the 20/22 Act Society, a group made up of people benefitting from Law 60, claim that their involvement in the Island is entirely positive for Puerto Rico, bringing wealth and investment to the Island.
Opponents claim that these new residents are an example of “predatory gentrification,” and are displacing local people. They have inflated housing costs and are creating developments which are bad for the environment and for local culture, according to groups like #AbolishAct60. Some of these groups are separatists advocating for independence, but statehood would inevitably mean an end to Act 22.
Should Act 22 be abolished?
Statehood would end Act 60, which includes both Act 20 and Act 22. But Congress could abolish the law without the agreement of the territorial government, as long as Puerto Rico is a territory of the United States. if Puerto Rico became independent, the new government could choose to keep the law in place or to add more tax dodges.
The current territorial government wants to keep Act 22, claiming that it brings in revenue.
It must be borne in mind that any law made for Puerto Rico by the U.S. Congress can be overturned by the next Congress. Until Puerto Rico becomes a state, piecemeal legal changes are temporary fixes. Statehood is the only permanent solution. Right now there are Puerto Rico status bills in both the House and Senate. If you live in a state, reach out to your congressional reps and senators. Ask them to get on the right side of history and support the Puerto Rico Status Act.