Puerto Rico is usually thought of as a tourism destination or is usually invisible in the U.S. media. In recent times, its fiscal and economic crisis has led to show up in the business pages of the mainstream media with inaccurate comparisons with Detroit or Greece whose fiscal crisis had attracted much media attention. As usual, the mainstream press looks at the illness without looking at the root causes. And the comparisons are usually risky because they tend to ignore history and the nuances of each case. Unfortunately for Puerto Rico, its fuzzy political relationship with the United States is always described with euphemisms by the supporters of the governing Popular Democratic Party (“Commonwealth”) in order to avoid the undeniable truth. The basic problem of the Puerto Rico model is the failure of its economic system to provide the revenue to pay for services. While in the early stages of what was called “Operation Bootstrap” there was a closing of the gap in wages between Puerto Rico and the United States. But after the 1970s the gap began to expand. Part of the reason was the decline in unionization rates, and the decline in the economic development efforts which led to less revenues going to the government coffers. Since the 1970s, they began to rely on debt to pay for basic public services and to pay for previous debt. This is a chaotic situation given that the public debt of Puerto Rico is $71 billion dollars or 102 per cent of the island’s GNP the highest of any state in the U.S. The debt income ratio is 83 per cent almost 14 times the same measure as New York, California or Illinois. In order to obtain some revenue from these newly incorporated “controlled foreign corporations” the colonial government instituted Law 154 to tax these corporations at a rate of 4 per cent, in an industry that has become addicted to low taxes this measure has not been received well. In 2012 the government received $1.8 billion dollars from this measure. A local economist Argeo Quiñones has argued that instead of this tax the government should legislate to increase the backward linkages of these enterprises. In other words to provide incentives so that they buy a higher percentage of their industrial inputs to infuse more money into the economy and further increase employment. Because of the reliance on local tax exemptions, “controlled foreign corporations” are not subject to federal taxes and at times they sell their intellectual rights (like Microsoft USA) to their local foreign owned subsidiary (since Puerto Rico is foreign for tax purposes) and are able to save billions of dollar in the sales in the U.S. market. The Congress Committee on Homeland Security and Governmental Affairs (October 12, 2012), chaired by Senator Max Baucus found that: “In 2011, this corporate sleight of hand enabled Microsoft USA to shift 47 cent of every dollar in U.S. sales totaling $6 billion, to its Puerto Rican subsidiary, dodging payments of U.S. taxes on nearly half of its U.S. sales income.” In the meantime, foreign corporations in Puerto Rico, predominantly from the U.S. repatriated $33 billion in profits in 2012. It is also good for drug traffickers, Puerto Rico is a trans-shipment point for drugs into the United States that brought in $5 billion in drug trafficking activity in Puerto Rico in 2011. Recently, in 2012 the regular election included a referendum on Puerto Rico’s status. The referendum had two parts, one in which people had to choose whether they were satisfied with the present “territorial status” status, given the long term efforts to improve it the results of this vote were not a surprise. 54 per cent of the voters chose that they were not satisfied with the present colonial status. In the second part of the referendum people were given three choices, but the present status of “commonwealth” was not included. The purpose was to disperse the pro-commonwealth vote and highlight the pro-statehood vote. However, in protest for the language of the ballot the PPD asked its supporters to leave the ballots blank. In this round, while statehood received the highest percentage of the votes 44.4 per cent it is the lowest pro-statehood vote since 1998 and 1993. When the blank votes are added to the rest 54.7 percent of voter rejected statehood. But in sum, these results have confused the issue for congress and while the Obama administration approved funding for another plebiscite and another bill is in Congress to ask voter “Yes or No” on statehood no reasonable observer expects any clear result from these efforts. Especially when the General Accounting Office (GAO) in March released a study where the consequences of statehood for Puerto Rico will be dismal, what remains of the manufacturing sector will leave and what will be left is a population dependent on federal subsidies. Puerto Ricans need a clear path toward the resolution of their political status. This will have dire consequences for all, Puerto Rico and the United States.
1. The essay about Puerto Rico is mainly about ________.
2. The main mode of analysis used by the author is ________.
3. The blank votes in the ballot came mainly from ________.
4.The body of “controlled foreign corporations” is composed of ________.
5.The fuzzy descriptions of the relationship between Puerto Rico and the U.S.A. are a euphemism for its status as a ________.
