Aside from explaining the depth of the crisis in Puerto Rico post-Hurricane Maria, it became apparent that Americans of the mainland United States needed a crash-course in the history of the territory. What better fundamental American-blooded, love-to-hate topic to focus on than taxes? After-all, American colonists threw a bunch of tea in a harbour 250 years ago, in a fight for independence from exhaustion of taxation. If you live in Puerto Rico, you’d probably agree that was a waste of time. And if you’ve ever been to Puerto Rico, you’ve probably tasted the coffee, and no one would advocate for throwing any of that in a harbour.
Puerto Rico has suffered immensely from the debts owed to their motherland, stifled by heavy tax burdens, unable to reinvent their historically productive functions. Another American way of life seems to be that, when in doubt, tax away. The federal and local governments certainly follow this rule when it pertains to the island, crippling potential economic diversifications. As the humanitarian crisis on the island grows, the response received plateaus, which is not surprising considering that nearly half of Americans don’t know Puerto Ricans are US citizens.
After a slow response to the humanitarian crisis in the aftermath of Hurricane Maria, the Trump administration received criticism from both political parties. As justification of the unequal treatment, the administration asserted that residents of the island do not pay federal taxes. But how true can that be, Mr. President? Puerto Rico is essential to the bottom line of the United States, contributing more in just income tax dollars than Vermont last year. Followers of public policy find this a bit ironic, as this excuse is used repeatedly to defend discriminatory treatment.In case you didn’t, here’s a few things to know:
1. You pay less taxes living in the mainland United States.
Nearly half of all Americans don’t pay any income tax.
- Most federal income taxes are borne by the portion of the population making over $1 million USD per year. The top 1% of earners in the US includes those who make over $450,000 (AGI), making those who earn above $1 million, far fewer.
But that’s not all.
- Mainland US citizens are eligible for federal income tax returns, whereas US citizens residing in Puerto Rico are not.
Residents of Puerto Rico pay more in taxes than mainland American citizens, even more than New Yorkers.
To understand the gravity of the differences in taxation in Puerto Rico, New York City becomes a good point of comparison.
- New York City’s median salary last year was $50,711.00. If single, or married filing separately on your taxes, the local income tax rate is 3.648%, equating to about $1850.00 in taxes. If that New Yorker made the same living in Puerto Rico, they would pay a base of $3,430.00, plus 25% of the excess over $41,500.00. In total, the resident of Puerto Rico would pay $5,732.00, almost $4000.00 more than the New Yorker.
2. Puerto Rico pays the same, for less benefits.
Puerto Rico does pay federal taxes.
- Puerto Ricans are required to pay federal income taxes on income from federal sources outside of Puerto Rico, including wages of federal judges and workers.
Employers and employees in Puerto Rico are still subject to payroll taxes, including: Social Security, Medicare, and unemployment taxes at the same rates as those of the mainland.
Puerto Ricans do not receive the same public services as mainland tax payers.
- Medicare and Medicaid are capped under limited funds, and those below the poverty line receive less that mainland US residents.
There is no Social Security Income in Puerto Rico, although they pay taxes on it.
In 1982, Puerto Rico was removed from the federal food stamp program and it has not since been reinstated.
Puerto Rico has the highest sales tax in the country.
Even New Yorkers pay less with a current rate of 8.875% sales tax on goods and services. Some categories, including food items purchased at grocery stores, prescription drugs, and clothing under $110.00 per item are exempt from this tax. In Puerto Rico, however, residents pay the highest sales tax in America at 11.5%. Groceries, clothing, and prescription drugs are not exempt as they are in the mainland states. Assuming on the lower end of the spectrum that feeding a family of four costs $173.00 per week, it would cost (untaxed) $9,021.77 annually to live in New York. In Puerto Rico, that same amount of weekly spending on food would run up $10,059.27. This is part of long list that compounds cost of living differences on the island.
3. Puerto Ricans don’t have a choice.
Residents of Puerto Rico cannot vote.
The anti-British slogan before the American Revolution reads in full, “Taxation without representation is tyranny”. If scholars and Americans alike subscribe to these historical arguments, then tyrannous the US has become. Residents of the island do not have voting rights in the U.S. presidential election, and can’t vote in the U.S. congressional elections either. Puerto Rico has no electoral representation and therefore no voting members of Congress and no Senators. Paying some of the highest tax rates in the country, Puerto Rico cannot vote for the policies that directly dictate those payments.
Were those tea throwers so crazy after all? Not really. Just ask Puerto Rico.
The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.
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