The manufacturing sector in the U.S added 29,000 jobs in January. January figures for Puerto Rico’s manufacturing sector are not yet available, but as of December, 2015, Puerto Rico had lost 2.5% of manufacturing jobs for the year, slipping from 74,800 manufacturing jobs in July to 73,000 in December.
Puerto Rico also has 12.2% unemployment, while the United States as a whole shows unemployment rates below 5%. This is in spite of the fact that people of working age have been leaving Puerto Rico in large numbers, shrinking the total potential workforce. (All figures from the Bureau of Labor Statistics.)
Rep. Luis Gutierrez said in a recent speech that Puerto Rico needs “jobs, jobs, jobs!” to solve its fiscal crisis, and Puerto Rico’s manufacturing sector is where the Island has focused job creation efforts for many years. Unfortunately, those job creation efforts rely on tax breaks intended to lure companies from the mainland to Puerto Rico. Historically, we have seen that those companies save billions of dollars in taxes, but don’t create enough jobs in Puerto Rico to make a difference in Puerto Rico’s economy. Puerto Rico stands out among U.S. jurisdictions in that there is no federal tax imposed on companies and Puerto Rico’s local tax on U.S. based companies ranges from zero to four percent; yet these tax breaks have not helped Puerto Rico’s manufacturing activity relative to the fifty states.
Microsoft, to take one famous case, saved 4.5 billion dollars in taxes by claiming that nearly half of its western hemisphere business originated in Puerto Rico. Of the 90,000 people employed by Microsoft and the 54,000 of those who lived in the U.S., fewer than 200 were based in Puerto Rico. Even Bill Gates has observed that the way the U.S. treats Puerto Rico is “just wrong.”
“Commonwealth” party leaders have often used the special tax breaks given to corporations to argue against statehood for Puerto Rico, saying that the loss of these incentives would be harmful to Puerto Rico’s economy. While some of these tax loopholes have been closed by Congress, Puerto Rico’s government-sponsored website lists a sweet incentives package for manufacturing businesses:In order to bolster the manufacturing sector as well as other strategic areas, the Island Government has created an aggressive economic and tax incentives program with the purpose of helping operations on the Island become more profitable to those companies who manufacture here. Below are some of the tax benefits offered under Act No. 73 of 2008, known as the Economic Incentives Act for the Development of Puerto Rico:
4% income tax on industrial development income
0% to 1% tax rate on income for pioneer or novel products manufactured in PR
Up to 50% tax credit on purchases of products manufactured or recycled locally
Up to $5,000 for each job created during 1st year of operation
Up to 50% tax credit on Research and Development activities
Special deductions on investments from structures, machinery and equipment
Marketing incentives program available to qualified PRIDCO-promoted companies whose sales are greater than $100,000 per year
The same web page describes Puerto Rico as a “manufacturing powerhouse” even though the largest employer in Puerto Rico is the government and the largest private employer is retail giant Walmart. The description is based not on reality, but on the tax break plan to bring manufacturing jobs to Puerto Rico. How is that plan working? Manufacturing jobs are disappearing. U.S. reshoring initiatives, which should logically be benefiting Puerto Rico, are instead seeing more factories being built in the Carolinas, Florida, and Georgia — states which are gaining workers from Puerto Rico. And Puerto Rico’s fiscal problems mount.
Investments in the infrastructure of Puerto Rico would bring more manufacturing to the Island. Instead, Puerto Rico is excluded from federal funds that would improve its roads, and needed improvements in electric and water utilities have been ignored for decades. The inequities between Puerto Rico and the States make it less appealing to companies looking for a place to build manufacturing plants.