One of the most persistent myths about Puerto Rico is that it receives damaging amounts of federal funding. Sometimes this is presented as a claim that Puerto Rico is too expensive for the United States to support — either now, in its current territorial status, or as a state in the future. Sometimes this kind of report ends with the conclusion that the U.S. should “cut Puerto Rico loose” in order to avoid having to pay for the needs of the 3+ million U.S. citizens living there. Sometimes this line of argument presented as a claim that Puerto Rico receives so much federal support that residents have no motivation to work and the local government has no reason to take responsibility for its actions.
Economists Arthur MacEwan and J. Tomas Hexner say this is not the case:
In 2004 and 2010, seventeen states and the District of Columbia received more in “net federal expenditures per capita” than did Puerto Rico. That is, in more than one-third of all the states, in these two years, the net amount per capita received from the federal government—federal expenditures minus federal taxes—was greater than the net amount per capita received from the federal government in Puerto Rico. There is no reason to think that 2004 and 2010 were unusual with respect to federal expenditures and taxes.
Net federal expenditures per capita are the amount the federal government paid above the amount received for those states and the District of Columbia. You can see one ranking of the 50 states on the map below, from WalletHub. States which receive more from the federal government are darker blue than those that receive less. This includes not just federal grants — the “welfare” part — but also federal contracts and other types of federal assistance, in comparison to the amount the states pay in federal taxes. Some of the rankings may be surprising. For example, Arkansas, a poorer state than Missouri, actually gets less return on its taxes than Missouri does.
Here’s another surprise: Puerto Rico is not included, but if it were, it would not be the brightest blue on the map.
How can this be? Residents of Puerto Rico do not pay federal income tax on money earned in Puerto Rico, and they have a higher incidence of poverty than any of the States. Many assume that this means that federal money is flowing into Puerto Rico and nothing is coming back.
In fact, nearly half of the people in the States do not pay any income taxes at all, either because they don’t earn enough or because they are able to take advantage of tax laws. Puerto Ricans pay Social Security and Medicare taxes, and Puerto Ricans pay income tax on federally-sourced income. So Puerto Rico has historically paid more in federal taxes than a number of States.
As far as the money Puerto Rico receives from the federal government, that too is different from the States.
“Puerto Rico is excluded from some major federal expenditure programs (e.g., the Earned Income Tax Credit) and is treated less favorably than states in some others (e.g. Medicaid and Medicare),” MacEwan and Hexner point out. “Further, Puerto Rico is virtually excluded from federal procurement and employment expenditures. These various exclusions from federal expenditures appear to more than balance the privilege of not paying personal and corporate taxes.”
Using the most recent data available, the economists found that Puerto Rico was #19 in net federal expenditures per capita among the 50 States and the District of Columbia.
Would this change under statehood? Perhaps. After all, Puerto Rico is unique in having a strict limit on the amount of Medicaid spending it can receive from the federal government. Not being a state has cost Puerto Rico billions in Medicaid spending over the years. In addition, much of the funding flowing to states is the result of members of Congress advocating within the federal government to bring procurement and employment opportunities to their states and districts. Lacking representation in Congress literally costs Puerto Rico federal dollars.