On March 2014, the United States Government Accountability Office (GAO) issued Report GAO-14-31 titled, Information on How Statehood [of Puerto Rico] Would Potentially Affect Selected Federal Programs and Revenue Sources [1] (read report here or highlights here). The report was requested by the Committee on Natural Resources of the House of Representative of the United States (US) Congress which oversees all issues relating to the unincorporated territory of Puerto Rico. The purpose of the report is…

…to review potential fiscal implications for federal programs if Puerto Rico were to become a state. This report examines potential changes to selected federal programs and related spending changes, and changes to selected federal revenue sources that would be expected should Puerto Rico become a state. This report also discusses economic and fiscal factors under statehood that could influence changes in spending and revenues.

GAO is often refer to as “independent” and “non-partisan” and, within Congress, it is respected for its “neutrality”. However, we need to consider the context to understand these statements about the office. GAO responds to the Congress of the USA and the constituents of its members. Therefore, it shouldn't be a surprise to anyone that GAO serves the interests of the US. Whenever a report is issued by GAO on Puerto Rico (PR) or issues affecting PR, the findings and recommendations will assert the interests of the US, whether or not they advance the interests of PR. Through GAO reports, the US asserts what is needed to be said to further its goals and needs, not the interests of entities “that are not part of” the US, like PR.

The following paragraphs discuss what the report “asserts”; what the US says knowing it will be heard in PR. Keep in mind that discussing what the report “states” doesn’t validates or negates the content.

What GAO says about the Commonwealth of Puerto Rico (today’s colonial status)?

Figure part of the reports GAO-14-31. Since the Commonwealth of Puerto Rico inception on 1952, unemployment rate has oscillated around 15% [2][3], the labor force participation rate has been declining steadily from 55% to 42% [2][3]. The percent of population below the poverty threshold has decreased from 63% in the 1970s to 46% today. However, this drop is artificial; it is due to federal transfers and not a real improvement of personal income [4]. This historical data is not presented in report GAO-14-31 [1] and therefore no evaluation of the Commonwealth “success or failure” is implied. (See References List)

GAO-14-31 presents data of the current state of PR economy and the current levels of grants, payment to individuals, and taxes paid by individuals. Supporters of statehood in PR stress the weak position of PR economy when compared with states is proof the Commonwealth of PR failure. For this group, the report states the current status, the Commonwealth of Puerto Rico, is a failure and, therefore, is supporting a bid for statehood. However, this is not the reason the report outline the economic situation of PR. If the report had included the historical data showing a worsening economy throughout the life of the Commonwealth (created in 1952), then the “failure” message would be true. The fact it just presents the current data and compares it to the states, sends the message that PR economy is too weak when stacked up against states, and that pose a problem for statehood.

What GAO says about Puerto Rico as a State?

Table part of the report GAO-14-31. The programs “likely to change” (other than Federal Aid Highways) support individuals and families below the poverty threshold. Those programs where “eligibility determination may be affected” also support this group. Finally, programs “not likely to change” do not support the group below the poverty threshold.

The report analyzed the potential impact on federal programs if PR became a state. It also examined the potential changes of federal income tax revenues. The table above summarize the federal programs likely to change as well as those not likely to change. Under the current status, some federal programs apply to PR exactly as they do in the states, and therefore are not likely to change. Other federal programs apply partially and are likely to change (increasing federal spending). In all, the report estimates an increase on federal spending in PR anywhere between $1.2 billions to $5 billions from current levels.

Figure part of the report GAO-14-31.

On the other hand, revenues from federal taxes would also increase. Individual income tax would increase between $2.2 billions to $2.3 billions. Corporate income tax would increase between $0.7 billion to $5 billions. In total, the revenues of the federal government would increase between $2.9 billions to $7.3 billions. When considering federal spending vs federal revenues, the balance would be anywhere between $1.7 billion to $2.3 billions in favor of US. In short, the reports says the net effect of statehood on Federal Spending vs Federal Revenues is negative for PR. Once again the message from GAO is against statehood.

Figure part of the report GAO-14-31.

What about for PR people?

The federal transfers would “benefit” those below the poverty threshold. The programs, that are likely to change under statehood, support the group of PR population below the poverty threshold. However, if we consider the effect of increasing federal spending throughout the life of the Commonwealth, we notice it has increased dependency and lowered labor participation rates. It is reasonable to theorize an increase of federal spending would lead to an increase in dependency and a lower labor participation rate. Without a major overhaul of federal programs to promote social mobility instead of dependency, it can be argued that statehood is not in the best interests of Puerto Ricans, PR government or US government, and would be moving in the wrong direction.

Moreover, whether those not in the group mentioned above see a net increase in their taxes when they start paying federal taxes will depend on the changes PR government implement on “state” taxes. To maintain current taxation levels on individuals, PR government would have to significantly lower “state” taxes. Failing to lower taxes, would mean a net increase on tax being paid by individuals. Higher taxes and worsening economy are the mains causes of the emigration of Puerto Ricans to the US during the past decade. Again, it is reasonable to assume the increase in tax burden to individuals under statehood would lead to a worsening economy and increased emigration.

What about the Government of PR?

The report implies, the effects of statehood on PR government would be disastrous. As outlined in the report, PR bonds will lose their attractiveness (losing their triple tax exemption) and, as mentioned before, to maintain current tax levels, PR’s tax must be lowered considerably. Also, in the last eight years a large portion of PR government revenues have been taxes to multinational corporations subsidiaries in PR, which are considered Foreign Controlled Corporations. PR government have been able to tax these companies without driving them out since they can get tax credits on their federal income tax. This scheme would not be possible, and would disappear, under statehood.

In addition, the report mentions the likelihood the new federal taxes would push many of these companies to abandon PR, impacting the economy and PR government revenues further. All this would result in significant lower revenues for PR government under statehood, and no means to finance government major legislation. The report states statehood would negatively impact PR government.

Messages to statehood supporters

While discussing the different scenarios to consider and uncertainties in the estimates of federal grants, payments and revenues, the report includes another worrisome statement for statehood supporters. Statehood supporter have been working under the assumption, and have been advertising, the theme of achieving “equality” with states. Still, the reports literally tells all that, under PR statehood,

…Congress could enact legislation that creates or maintains certain exceptions for Puerto Rico.

It seems the GAO report take a direct stab at the “equality” premise of statehood supports.

GAO as a Manipulation Tool of Opinion

After discussing what the report -the government of US- says about statehood, it becomes clear it is presenting arguments against PR becoming a state. However, the report is not meant to be in favor or against any particular status formula. The report is meant as a opinion manipulation tool. The goal of US is to maintain the colonial status of PR.

With the report, US aims at driving opinion of all Puerto Rican sectors across the political spectrum toward a head-on collision with each other. US, through GAO reports (and many other tools), browbeats on the people of PR and all of their non-colonial aspirations. The US wants to provoke exactly the reaction Puerto Rican had: disagreement, conflict and division. US wants to move attention away from their non-actions and violations of the human rights of the people of PR (because they maintain a colony). The US wants to control the topics under discussion in PR. By closing doors or getting hopes up, US manipulates opinion in PR. At the end, the US wants the people of PR to be inside a political gridlock. And as long as the US is successful in pushing PR toward gridlock, they will be successful in keeping PR a colony.

Whoever relies on the US to resolve the status problem and end the colony in PR, is allowing the US to push them toward gridlock and perpetual colonial status. Any person who keeps paying attention to US narrative, will be mislead into believing winning is within grasp and opponents are doomed. As long as every political sector in PR accept nothing but “victory”, the colony will persist and US interests will prevail.

PR status problem will only be resolved by the nation of PR in an exercise of its sovereignty. Ending the gridlock and ending the colony is in the hands of the people of PR. Puerto Ricans need to recognize that the main agent against change is the US. Attention needs to be focused on US actions and/or inactions. PR must cause US domestic opinion and the international community to be aware of, and pass judgment on, US government illegal and immoral treatment of its colony, PR.

References

[1] United States Government Accountability Office. (marzo 2014). Report GAO-14-31: Puerto Rico, Information on How Statehood Would Affect Selected Federal Programs and Revenue Sources. Obtenido de http://www.gao.gov/assets/670/661334.pdf

[2] Departamento del Trabajo y Recursos Humanos. Serie Histórica de Empleo y Desempleo Puerto Rico, Promedio Años Naturales 1970-2010, Revisión Censo 2000. Obtenido de http://www.estadisticas.gobierno.pr/iepr/LinkClick.aspx?fileticket=QUEOkgr1Yyk%3d&tabid=186

[3] Departamento del Trabajo y Recursos Humanos. Serie Histórica de Empleo, Desempleo y Grupo Trabajador, Promedio Año Natural 1947-1969, Cifras Revisadas Según Censo 1970. Obtenido de http://www.estadisticas.gobierno.pr/iepr/LinkClick.aspx?fileticket=5wGH11-zY4w%3d&tabid=186

[4] Ruiz, Angel L. (octubre 2009). Un Breve Recuento Histórico del Desarrollo Económico de Puerto Rico a Partir del 1898. Obtenido de http://pensamientocaribenoangelruiz.files.wordpress.com/2009/10/desarrollo-economico-ba544.pdf

About the Author

Reinaldo Martínez is a Project Manager in the Pharmaceutical Industry, and blogger for Repensando La Nación. He has written over 70 entries on 3 blogs, and have been published by in Periódico Digital Puertorriqueño La Nación, MUSPR.org and Chispero. When his is not constructing projects, he likes to comment on current Puerto Rico issues, or spend time with family and friends at the beach. You can contact Reinaldo on Twitter, @lifenbits, or his FB public page, https://www.facebook.com/ReinaldoMtnezVlqz.