Ensuring Puerto Rico’s Long-Term Economic Development (OPINION)

Aug 5, 2020
11:58 AM

Puerto Rico’s Capitol building (Brad Clinesmith)

Recently, Judge José A. Cabranes, a judge on the Second U.S. Circuit Court of Appeals wrote about resurrecting the controversial Possessions Tax Credit and its Section 936 of the IRS Tax Code to entice American drug companies to again set up shop in Puerto Rico with the promise of shielding their profits from U.S. federal income taxes while reducing China’s drug manufacturing monopoly of various important medications.

These incentives were unilaterally phased out by the U.S. Congress in 1996 to stop corporate welfare and the loss of billions of tax revenues for the U.S. Treasury without any regard for the subsequent recession and economic debacle that occurred in Puerto Rico—increasing unemployment, poverty, financial instability, and the growing emigration of professionals looking for better opportunities outside of the failed colonial Commonwealth. The people of Puerto Rico and its economy can’t take any more unilateral economic experimentation made in the Washington vacuum.

Congress giveth and Congress taketh away. We have seen this movie before and know how it ends. Just like in 1976, the suggestion that Congress will provide corporate welfare today to incentivize making Puerto Rico, in Judge Cabranes’ words, “America’s Medicine Cabinet” and NEVER change its mind, as happened in 1996 when the Section 936 tax incentives were eliminated, is just political naïveté.

Even Luis G. Rivera Marín (Ricardo Rosselló’s former secretary of state), believes that such a return to pharmaceutical tax incentives will make Puerto Rico more beneficial and useful to the United States. Recently, such calls were being rallied to and supported by Republican Senator Roger Wicker with a bill to allow Puerto Rico to enact such tax incentives. As a colony or a state, such tax incentive bills are mere economic Band-Aids as Puerto Rico lays helpless and strapped to a hospital bed of colonial economic squalor.

Puerto Rico needs long-term economic development and access to global markets, not reused plans that have failed in the past and will fail again. When it was economically convenient for Congress to phase out the tax benefits, they did—without ever considering the personal despair and economic malaise they created in Puerto Rico by destroying all of its long-term economic development goals and policies in one fell swoop. Are we to breathe new life into Puerto Rico’s economy or go back to the failed ways of the past?

In order to avoid the grave errors of a bygone era (losing billions on tax evasion) and have Puerto Rico depend less on U.S. federal funds, such incentives must be tied to a sovereign Puerto Rico that is in full command of its economic variables and policies, not a Puerto Rico left powerless and adrift by the whims of the U.S. Congress. Such economic and manufacturing incentives should occur without the current colonial model where Puerto Rico lacks the power to actually formulate and implement long-term economic development policies. The tax carrots and short-term jobs for a few would perpetuate the failed economic Ferris wheel of this colonial circus that has mired and restricted Puerto Rico’s economic potential since 1898.

Even if new incentives were to produce the level of limited economic development of past tax schemes, Puerto Rico has learned that it cannot depend on the whims of unilateral experimentation by a Congress that is looking out for American, not Puerto Rican interests. That was made clear (yet again) earlier this week when the U.S. government did not agree with a federal judge’s decision that it was unconstitutional to deny Puerto Ricans federal aid from three welfare programs.

The prescription is clear. A sovereign Puerto Rico can establish tax and trade agreements with the United States based on a treaty of equals. Unlike a mere statute that can be overturned on a legislative whim, a U.S. trade agreement signed with a sovereign Puerto Rico would provide the certainty and constancy needed to make immediate job creating investments which would yield the stable and predictable manufacturing and pharmaceutical production and supply creating a very stable economic and business climate that would benefit the peoples of both nations. A sovereign Puerto Rico will finally be able to not just properly ensure their nation’s long-term economic policies, but would become an American ally, a strategic partner, and an important market for American goods and services in Latin America.

A return to old and failed policies is not the option if Puerto Rico is to succeed in the world economy. A sovereign Puerto Rico would become one of Latin America’s largest and most diversified economies, particularly in manufacturing, pharmaceuticals, technology, aerospace, biofuels, higher education, and tourism, among other sectors. A sovereign and economically prosperous Puerto Rico better serves the United States’ interests in the region than keeping the island-nation in the colonial laboratory as a hopeful “medicine cabinet” for the benefit of others.


Javier A. Hernández is the author of “PREXIT: Forging Puerto Rico’s Path to Sovereignty.” He is a Puerto Rican writer, linguist, and small business owner based in New Jersey. He specializes in international relations and security, decolonization issues, nation-building strategies, and diplomacy of small states, and can be followed on Twitter @PRexitBookFacebook, and at: PRexitBook.com.