Saturday, September 30, 2017

A snapshot of Puerto Rico

Heavy debt load

In early 2017, the Puerto Rican government-debt crisis posed serious problems for the government which was saddled with outstanding bond debt that had climbed to $70 billion at a time with a 45 percent poverty rate and 12.4% unemployment that is more than twice the mainland U.S. average.[225] The debt had been increasing during a decade long recession.[27]
The Commonwealth had been defaulting on many debts, including bonds, since 2015. With debt payments due, the Governor was facing the risk of a government shutdown and failure to fund the managed health care system.[226][227] "Without action before April, Puerto Rico’s ability to execute contracts for Fiscal Year 2018 with its managed care organizations will be threatened, thereby putting at risk beginning July 1, 2017 the health care of up to 900,000 poor U.S. citizens living in Puerto Rico", according to a letter sent to Congress by the Secretary of the Treasury and the Secretary of Health and Human Services. They also said that "Congress must enact measures recommended by both Republicans and Democrats that fix Puerto Rico’s inequitable health care financing structure and promote sustained economic growth."[227]
Initially, the oversight board created under PROMESA called for Puerto Rico's governor Ricardo Rosselló to deliver a fiscal turnaround plan by January 28. Just before that deadline, the control board gave the Commonwealth government until February 28 to present a fiscal plan (including negotiations with creditors for restructuring debt) to solve the problems. A moratorium on lawsuits by debtors was extended to May 31.[27] It is essential for Puerto Rico to reach restructuring deals to avoid a bankruptcy-like process under PROMESA.[228] An internal survey conducted by the Puerto Rican Economists Association revealed that the majority of Puerto Rican economists reject the policy recommendations of the Board and the Rosselló government, with more than 80% of economists arguing in favor of auditing the debt.[229]
In early August 2017, the island's financial oversight board (created by PROMESA) planned to institute two days off without pay per month for government employees, down from the original plan of four days per month; the latter had been expected to achieve $218 million in savings. Governor Rossello rejected this plan as unjustified and unnecessary. Pension reforms were also discussed including a proposal for a 10% reduction in benefits to begin addressing the $50 billion in unfunded pension liabilities.[30][230]

Federal taxes[edit]

Though the Commonwealth government has its own tax laws, Puerto Ricans are also required to pay most US federal taxes,[1][2][3][4][5][6][7][8] with the major exception being that most residents do not have to pay the federal personal income tax.[9] In 2009, Puerto Rico paid $3.742 billion into the US Treasury.[10] Residents of Puerto Rico pay into Social Security, and are thus eligible for Social Security benefits upon retirement. However, they are excluded from the Supplemental Security Income.
The federal taxes paid by Puerto Rico residents include import/export taxes,[11] Federal commodity taxes,[12] social security taxes,[13] among others. Residents also pay federal payroll taxes, such as Social Security[14] and Medicare taxes.[15]
Only certain residents of Puerto Rico are required to file federal income tax forms. According to the Internal Revenue Service:
In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income sources outside of Puerto Rico or if they are employees of the U.S. government. Bona fide residents of Puerto Rico generally do not report income received from sources within Puerto Rico on their U.S. income tax return. However, they should report all income received from sources outside Puerto Rico on their U.S. income tax return. Residents of Puerto Rico who are employed by the government of the United States or who are members of the armed forces of the United States also should report all income received for their services to the government of the United States on their U. S. income tax return.
United States citizens or resident aliens who are not bona fide residents of Puerto Rico during the entire tax year are required to report all income from whatever source derived on their U.S. income tax return. However, a U.S. citizen who changes residence from Puerto Rico to the United States and who was a bona fide resident of Puerto Rico at least two years before changing residence can exclude from U.S. taxable income the Puerto Rican source income received while residing in Puerto Rico during the taxable year of such change of residence. [16]
Bona fide residents of Puerto Rico cannot claim deductions and/or credits allocable to or chargeable against Puerto Rican source income that is excluded from a U.S. tax return. The deductions and credits not attributable to specific income must be divided between excluded income from sources in Puerto Rico and income from all other sources to find the part that can be deducted or credited on a U.S. tax return. Examples of deductions not attributable to specific income include alimony, the standard deduction, and certain itemized deductionssuch as medical expenses, charitable contributions, and real estate taxes and mortgage interest on your personal residence. Personal exemptions are generally allowed in full.
If you have taxable Puerto Rican source income on your U.S. income tax return, then you can claim a credit for foreign taxes paid to Puerto Rico. However, you are not allowed to claim a credit for foreign taxes paid with respect to Puerto Rican source income that is excluded from a U.S. tax return. Therefore, to properly calculate your foreign tax credit, you must reduce your foreign taxes paid by the amount of taxes allocable to excluded Puerto Rican source income.[17]
Employers in Puerto Rico are subject to both Federal Insurance Contributions Act (FICA) tax (a payroll withholding tax, which funds Social Security and Medicare) and the Federal Unemployment Tax Act (FUTA). Employers in Puerto Rico must withhold the employee portion of FICA taxes from their employees' wages and contribute the employer portion of FICA.[18]

Racial and Ethnic Composition in Puerto Rico (2015 Census est.)[268]EthnicityWhite
75.8%Black or African American
0.2%Two or more races
3.3%American Indian
0.5%Native Hawaiian and Other Pacific Islander
0.1%Other races
Historical population
2016 Estimate[4]

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