New Political Momentum for Puerto Rican Statehood

Originally published by The Hill here. Washington legislators have long been baffled by Puerto Rico’s economy, offering few, if any, successful policies. Hindered by an unexpected – and economically devastating […]

Originally published by The Hill here.

Washington legislators have long been baffled by Puerto Rico’s economy, offering few, if any, successful policies. Hindered by an unexpected – and economically devastating – natural disaster, Congress’ most recent attempt (see “PROMESA”) is unlikely to be the savior it was touted to be, lending to a potential momentum shift towards the one alternative that is oft-spoke of, but never seriously considered: statehood.

Given its shrinking economy (the island is currently in the middle of a depression longer than the Great Depression, with no end in sight) and departing population, it’s difficult to imagine any solution that will change Puerto Rico’s trajectory. Yet, while few have been willing to concede to the fact, Puerto Rico’s territorial status has long been an impediment to economic growth.

Renewed momentum supported by high-profile legislators, however, may finally favor Puerto Rico’s bid to become the 51st state. With the recent announcements last week by Florida Republican Gov. Rick Scott and Rep. Rob Bishop(R-Utah) in support of Puerto Rican statehood, full economic integration of the beleaguered semi-autonomous territory is more plausible than ever. If Scott pulls off a win in his bid for a U.S. Senate seat in November, his constituents (who also happen to comprise the fastest growing population of Puerto Ricans in the country) will demand that he joins Bishop, Sen. Marco Rubio(R-Fla.), and others in Congress who have voiced support for statehood.

To be certain, the reality of adding another star to Old Glory is far from certain, even with the addition of a strong champion in Gov. Scott. Support from powerful legislators will need to be combined with a campaign to educate Congress on the benefits of a Puerto Rican state. Given the one-way flow of economic resources to the island in recent years, the rest of the country will be hard to convince.

But, in the end, facts and economic research favor Puerto Rican statehood.  My organization, the National Puerto Rican Chamber of Commerce, has worked with numerous investors seeking to take advantage of lucrative tax incentives in Puerto Rico, but many delay their decision due to what they perceive as “political risk.” Relocating to or opening a new business in Puerto Rico can substantially reduce one’s tax burden, but some are concerned that a subsequent administration or new congressional leadership may work to overturn or mitigate such incentives, hampering the benefit that once led to the investment decision. In the ’90s, for example, Congress overturned a manufacturing tax incentive that many consider to have propelled the current economic decline.

While it is unlikely that Congress will be so brazen as to overturn any incentives for investors in today’s economic environment, political risks still contribute to its slow growth. Institutional and corporate investors require the potential for significant returns on investments before even considering expanding to a locality with unknown risks. Small businesses and individual investors are too often unwilling, or unable, to justify the risk, leading to the catch-22 that only a change in status can alleviate. Investors want economic and political certainty in Puerto Rico before they are willing to make the leap; Puerto Rico needs outside investors to stabilize the economy and provide an assurance on future growth.

However, if the island becomes a state, Puerto Rico’s perceived risks will be instantaneously on par with the country, leading to an economic boom with implications for the entire U.S. economy. Once investment flows unrestrained, economic output will again turn positive and fewer financial resources from the federal government will be required to maintain and support the government and citizens of Puerto Rico (who are increasingly relocating to other jurisdictions around the U.S.), simultaneously stabilizing its existing population base.

With renewed confidence in Puerto Rico’s future, the once-stifled economy will once again trend towards its full potential, while concurrently contributing to the country as a whole. Even under extreme debt and in the middle of a severe economic contraction, the Government Accountability Office estimated a net positive financial benefit to the Treasury if Puerto Rico becomes a state. Increases in corporate and individual investment will likely produce dynamic effects greater than the GAO’s estimate, while the island’s booming tourism sector will only contribute to productivity.

Gov. Scott, Rep. Bishop, and a growing number of legislators are in support of making Puerto Rico a state, not because they want to send more resources to the island, but because they realize it is the only policy that has the long-term potential to reduce the burden of Puerto Rico’s economic and social concerns on the rest of the country. With more than 3 million American citizens, Puerto Rico deserves to be on par with the states, but it also deserves the opportunity and freedom to innovate, create, prosper and grow, without the hindrance of experimental and unproductive policies. As a state, Puerto Rico will not be a net-taker, but a helpful contributor to the greatest nation on Earth.

Justin Vélez-Hagan (@JVelezHagan) is founder and executive director of the National Puerto Rican Chamber of Commerce.  He is also the author of The Common Sense behind Basic Economics (Lexington Books, 2015), as well as the upcoming The Paradox of Fiscal Austerity (2018).