Puerto Rico receives fewer federal benefits compared to the states. Residents in need receive lower amounts of nutrition assistance, Medicaid, and Medicare than they would if residing in a state. The territory also gets less aid during disasters and significantly fewer government grants and infrastructure assistance. One of the reasons cited for this is that workers in Puerto Rico are not liable for federal income tax.
Puerto Ricans are not liable for federal income tax
It is accurate that the majority of Puerto Rico’s residents are not obligated to file federal income tax returns. Section 933 of the tax code states that Puerto Rico’s residents do not need to pay federal taxes on income earned from “sources within Puerto Rico (with the exception of amounts received for services rendered as an employee of the United States or any of its agencies)[.]” Section 933 represents the current iteration of Public Law 81-814 (64 Stat. 906), initially enacted in 1950.
This legislation was introduced due to concerns that the newly established territorial government would require tax collections, and that Puerto Rico’s residents might struggle to manage both local and federal tax obligations. Consequently, Congress chose not to collect federal income tax from Puerto Rico.
Puerto Ricans pay other federal taxes
Individuals working in Puerto Rico contribute to Social Security taxes, self-employment taxes, and others. According to IRS statistics for 2023, Puerto Rico contributed $5,140,301, as opposed to Vermont’s $5,660,731. Although Vermont has a smaller population than Puerto Rico, it still receives the full range of federal benefits, while Puerto Rico does not. Thus, it is incorrect to assert that Puerto Ricans do not contribute any federal taxes.
Puerto Rico and Federal Income Tax
Federal dependency
Espacios Abiertos has recently indicated that Puerto Rico does receive greater federal expenditures than it contributes in federal taxes; however, the same applies to half of the states, including Michigan, Idaho, Louisiana, Oklahoma, Oregon, Montana, Hawaii, Vermont, Maryland, Pennsylvania, Maine, Wisconsin, Alabama, Arizona, Mississippi, West Virginia, Virginia, and New Mexico.
Furthermore, seven states have a larger per capita deficit in net federal expenditures than Puerto Rico, which include Connecticut, Indiana, South Carolina, Alaska, Minnesota, Kentucky, and North Dakota.
MoneyGeek has discovered that for every $1.00 residents of New Mexico pay into federal funds, they receive $3.42 in federal assistance. West Virginia, Alaska, and Mississippi each receive nearly $3.00 for every $1.00 they contribute.
The argument here is not that states and territories should serve as profit centers for the federal government. Rather, the federal government collects taxes to fulfill the needs of its citizens. The funds allocated to states do not rely on or are influenced by the amount of tax revenue they generate for the country. One could argue that Puerto Rico should not be subjected to different criteria.
Federal Taxes Would Benefit More Than Burden Most Puerto Ricans
The article Federal Taxes in Puerto Rico first appeared on PUERTO RICO REPORT.
