Statehood would mean billions of dollars a year for Puerto Rico — and individual Puerto Ricans — but also billions for the Federal treasury, the U.S. Government Accountability Office (GAO) reported today.
The long-awaited report gives ranges of dollar impacts if Puerto Rico and residents of the territory had been treated equally with the States and their residents in 29 Federal programs in Federal Fiscal Years 2010 and ‘ 11 and in tax laws in 2009 and ’10.
The chairman of the U.S. House of Representatives committee with jurisdiction over the status of territories, Doc Hastings (R-WA), requested the study along with the chairman of the Natural Resources Committee’s Fisheries, Wildlife, Oceans, and Insular Affairs Subcommittee, John Fleming (R-LA).
Hastings raised questions about statehood for Puerto Rico in 2010 shortly before the House passed a bill that he opposed to authorize Puerto Ricans to choose their preference for the territory’s status. One question was the impact of statehood on Federal spending. After having his Committee staff make an estimate then, Hastings initiated the GAO report request two years ago.
Since Puerto Ricans voted for statehood in November 2012, Hastings put a hearing on the plebiscite on the Committee’s agenda but the hearing has not been held or scheduled, and Hastings has decided to not run for re-election this year. Earlier, it was believed that he was waiting for the GAO report to schedule the hearing.
The report includes comments from Puerto Rico’s representative to the Federal government, Resident Commissioner Pedro Pierluisi, and from its governor, Alejandro Garcia Padilla. Both reviewed drafts of the report.
Pierluisi, who heads the territory’s statehood party, was encouraged by the report, while Garcia Padilla, who leads its “Commonwealth” party, disputed key findings.
“[S]tatehood will mean $9 billion to $10 billion in additional Federal funding … on an annual basis,” U.S. House member Pierluisi asserted.
Garcia Padilla was unhappy that the GAO confirms the results of the 2012 plebiscite. The report recognizes that Puerto Ricans opposed continuation of the current territory status, sometimes misleadingly called Commonwealth, by 54% and chose statehood among the alternatives by 61.2%.
The Governor and his party leadership unsuccessfully urged votes for territory status in the plebiscite and have disputed the balloting.
The “Commonwealth” party president also argued that the GAO underestimated the amount that Puerto Ricans would pay if all Federal taxes were extended to Puerto Rico. His party has long argued that statehood would mean excessive Federal taxation for Puerto Ricans.
The GAO study found that Puerto Rico’s funding would definitely have changed in 11 of the 29 programs it looked at and could have changed in another three if Puerto Rico were treated equally with the States. The programs in which funding would have definitely changed are: Medicare healthcare for the elderly and disabled; Medicaid healthcare for low-income individuals; Supplemental Nutrition Assistance (SNAP) food for low income-individuals; Supplemental Security Income (SSI) for low-income elderly and disabled; highway construction; Pell Grants for post-secondary education; Temporary Assistance for Needy Families for families out of work (TANF); Title I education funding for elementary and secondary eduction; Post-9/11 GI Bill post-secondary education housing for veterans; Childrens Health Insurance (CHIP); and post-secondary education Student Loans.
The programs in which statehood could change funding because of changes in other Federal programs are Section 8 housing assistance for tenants and for low-income housing projects and the Womens, Infants, and Childrens food program.
The report’s ranges of estimates are that statehood would have changed funding for Puerto Rico and Puerto Ricans in Fiscal Years 2010 or ’11 by
– $1.5 billion to $1.8 billion more under Supplemental Security Income (SSI), providing benefits to 271,000 to 320,000 more Puerto Ricans;
– No more to $1.5 billion more in Medicare, with the lower estimate due to increased funding in other programs;
– $515 million to $1.415 billion more in Medicaid healthcare for the poor — while reducing the Government of Puerto Rico’s Medicaid costs by up to $358 million and providing Medicaid coverage to 100,000 to 1.1 million more Puerto Ricans;
– $200 million less to $700 million more in SNAP, providing benefits to 158,000 fewer to 496,000 more Puerto Ricans; and
– $115 million more in highway construction funding.
The up to $1.415 billion more estimate for Medicaid does not include an additional $1.5 billion more for Medicaid long-term care assistance, which Puerto Rico does not provide now.
Because the report bases its estimates on 2010 and ’11 program amounts, it does not cover some programs created by the 2010 Federal healthcare reform. This includes helping middle-income individuals pay for healthcare insurance. Pierluisi said 160,000 Puerto Ricans receiving $1.5 billion a year in subsidies is “a conservative estimate.”
Elementary and secondary education funding would increase substantially, the GAO report makes clear, although it does not include an estimate. The “weighted child count” on which much of the grant is based would have increased from 744,358 to 1,203,805. Additionally, the “effort factor” in the incentive grants of the program would go up from .95% to 1.05%.
CHIP funding, $99.6 million in Federal Fiscal Year 2011, would have decreased due to Puerto Rico’s greatly increased Medicaid funding. The decrease could have been as small as $26.4 million or as much as all of the funding.
The report stated that Pell Grant and Student Loans amounts would rise but it did not provide estimates for the increases.
How Puerto Rico’s funding would have changed under a number of Federal programs was not projected. Most are programs in which national funding is less than $5 billion a year.
Also not estimated, however, was TANF. States with circumstances similar to Puerto Rico’s receive several hundred million dollars a year under TANF.
Pointing out that half of all households in the existing States do not have a net Federal income tax liability, Pierluisi also estimated that 70% of Puerto Rican families would not. Individuals do not have a net Federal tax liability if their earnings are too low or if they qualify for Federal payments to the extent that certain tax credits exceed taxes due.
The report estimates that individuals would have paid $2.194 billion to $2.346 billion in Federal income taxes in Fiscal Year 2010. But low-income workers would have received: $525 million in Earned Income Tax Credits, $473 million as cash payments, $137 million in Child Tax Credits, $85 million as payments; and $56 million in American Opportunity Tax Credits, $23 million as payments.
The report’s corporate tax estimates were for Federal Fiscal Year 2009. Corporations would have paid $4.4 billion less to $5 billion more in Federal income taxes that year, in which companies paid $4.3 billion. The very wide range is due to the extent to which companies from the States with foreign manufacturing subsidiaries in Puerto Rico would move insular operations to foreign countries with low tax rates and the fact that there were an unusually large amount of corporate federal income tax payments in 2009.
The likelihood of companies moving from Puerto Rico presumes, however, that Federal tax laws will not change. As the report explains,the operations at issue would be ones that produce products in Puerto Rico developed in the States. The parent companies currently shift to the territory tax ownership of product patents and brand names that together account for most of the value of the products to avoid Federal taxes. Federal tax reform proposals would end the incentive to move the operations abroad by taxing income from product patents and trademarks wherever it is earned.
The report points out, however, that the $4.3 billion in taxes that companies in the States paid on income from Puerto Rico in 2009 was an extraordinarily large amount. More normally, the companies would have paid $1.4 billion. The report does not estimate the changes in tax payments from that amount.
Other changes in tax programs would have eliminated $318 million in grants to the territory of Federal excise taxes on rum and Puerto Rican payment of $232 million in excise taxes on gasoline.
The report notes that its estimates cannot be relied upon for the actual budget impacts of statehood because of a number of variable factors.
One is that its estimates are based on Federal Fiscal Year 2009-11 data. Federal program and tax law equality would almost certainly be phased in over a multi-year period if Puerto Rico were made a State. The full budgetary impacts would not come until after the transition is completed.
The report also does not account for the current costs to the Federal government and State governments of 1,000 or so Puerto Ricans moving to the States each week because of the much greater opportunities in the States than in Puerto Rico due to its territory status.
Nor does the report attempt to quantify the budgetary impacts of Puerto Rico’s economy changing under statehood. Economic changes would affect Federal spending and revenue.
The report understandably also does not project increased Federal benefits due to Puerto Rico having two U.S. senators, multiple representatives in the U.S. House with votes in the full House unlike the present single representative, and votes in the election of the president and vice-president of the United States. If it were a State today, Puerto Rico would have more political power than two-fifths of the existing States because of its population, 3.6 million people. This power would certainly change programs to Puerto Rico’s benefit.
In addition, the report does not try to calculate increased Federal purchasing in Puerto Rico under statehood. Currently, the Federal government buys relatively little from the territory in comparison to its purchasing in the States. Increased purchasing would also boost Puerto Rico’s economy.
The GAO is an investigative arm of the U.S. Congress. Its report is entitled, “Puerto Rico: Information on How Statehood Would Potentially Affect Selected Federal Programs and Revenue Sources.”
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