One question that often comes up in discussions about equality for Puerto Rico is taxation.
Some say that they don’t want statehood because it would increase taxes. Others say that Puerto Rico shouldn’t have equal treatment in federal programs because they don’t pay taxes.
What’s the reality of taxes in Puerto Rico?
- First, people in Puerto Rico now pay 11% in sales taxes. This is more expensive than any State in the U.S., and it decreases the buying power of all the money used in Puerto Rico. It is the same for the rich and the poor. States’ sales taxes range from zero in 5 states to 9.45% in Tennessee. Puerto Rico pays more in sales taxes than any state.
- Residents of Puerto Rico pay federal payroll taxes, including Social Security and Medicare taxes, just as residents of the States do.
- Federal employees and contractors must pay federal income taxes on their wages. All residents of Puerto Rico pay federal income taxes on any income earned in any of the States.
This doesn’t tell the whole story, though. 43% of Americans living in the States — that’s nearly half of the people living here — do not pay income taxes.
Why not? In many cases, they are elderly, or full time students, or kids, or their income is simply too low. They don’t pay federal income taxes any more than people in Puerto Rico do. Often, however, they receive the Earned Income Tax Credit, a tax refund working people with low incomes receive whether they paid any taxes or not. That is, many people who now live in Puerto Rico pay exactly as much income tax as they would if they lived in a State… but they don’t get a refund because EITC does not apply to Puerto Rico.
Puerto Rico paid more in federal taxes than six states.
Who has told you that you would pay more taxes if Puerto Rico became a State? They are probably not telling the truth. As a State, Puerto Rico would receive much more federal support, and would be in a stronger economic position. The 11% sales tax would probably not be needed. None of the States needs that high a sales tax — because all the States are in stronger financial positions than Puerto Rico. And the per capita income in Puerto Rico is currently low enough that the average resident would not pay income tax, any more than the low income residents of the States do.