Tax Reform Is Puerto Rico’s Next Statehood Step

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Opinion for The Latino Newsletter

Editor’s Note: One of our core missions at The Latino Newsletter —and one that our founder, Julio Ricardo Varela, has upheld for years— is to feature the many voices involved in the public forum of the Puerto Rico status debate. Here is the latest opinion piece from Javier Ortiz, a statehood advocate.

As Puerto Rico stands on the precipice of potential statehood, it is imperative to align its fiscal policies with those of American states. A pivotal step in this alignment is the restructuring of our local income tax system to ensure competitiveness and economic vitality. Currently, Puerto Rico imposes a progressive income tax with rates reaching up to 33%, a figure notably higher than California's top marginal rate of 13.3%, the highest among in the Union.

High income tax rates can deter investment, encourage capital flight, and stifle economic growth. By reducing local income tax rates to levels below California’s 13.3%, we can position Puerto Rico as an attractive destination for businesses and individuals alike. This strategic move would not only stimulate economic activity but also broaden our tax base, potentially offsetting the revenue loss from lower rates. Additionally, a more competitive tax environment can help retain professionals and entrepreneurs who might otherwise seek opportunities elsewhere.

Economic Competitiveness

Lowering income tax rates would enhance Puerto Rico’s appeal to both domestic and international investors. A more favorable tax environment can lead to increased business investments, job creation, and overall economic prosperity. Furthermore, aligning our tax rates with those of other states would eliminate a significant barrier to statehood, ensuring a smoother transition and integration into the federal system. Economic expansion would allow for increased consumer spending and local development, further strengthening the island’s financial standing.

Fiscal Sustainability

Critics may argue that reducing income tax rates could lead to decreased government revenue, jeopardizing public services. However, the Puerto Rico Institute for Economic Liberty has highlighted that lower tax rates can encourage economic growth, ultimately leading to higher overall tax revenue. Their research underscores the importance of tax competitiveness in fostering a stronger, self-sustaining economy for Puerto Rico. By broadening the tax base and promoting compliance, we can maintain, if not enhance, our fiscal health. Furthermore, the increased economic activity resulting from a lower tax burden would generate supplementary revenue through sales taxes, property taxes, and business expansions, offsetting potential shortfalls in government funding.

Call to Action

Governor Jenniffer González-Colón, Senate President Thomas Rivera Schatz, and House Speaker Carlos “Johnny” Méndez Núñez have a mandate from the people to steer the territory of Puerto Rico toward a prosperous future. It is incredibly important to initiate comprehensive tax reform that aligns the territory’s income tax rates with those of the most competitive American states. Such reform is not merely a fiscal adjustment; it is a declaration of the territory's readiness to embrace the full responsibilities and privileges of statehood.

Restructuring Puerto Rico’s income tax system is a critical step toward economic revitalization and statehood preparedness. By adopting competitive tax rates, we signal to the nation and the world that Puerto Rico is ready to thrive as the 51st state of the United States. Thoughtful tax reform will ensure long-term prosperity, attract investment, and affirm Puerto Rico’s readiness to fully integrate into the American economic framework.

About the Author

Javier Ortiz, with over 30 years of experience in technology, business, and the public sector, leads investment technical due diligence and innovation at Falcon Cyber Investments.

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The Latino Newsletter welcomes opinion pieces in English and/or Spanish from community voices. Submission guidelines are here. The views expressed by outside opinion contributors do not necessarily reflect the editorial views of this outlet or its employees.