Puerto Rico is treated like a State in most Federal laws but there are important exceptions: Puerto Ricans pay federal taxes, but they do not pay income tax on earnings from the territory. While some suggest that this is an excuse for less than equal funding in some major programs, nearly half of all residents of States do not pay income taxes either because their income is too low or because they have tax deductions or credits which eliminate the taxes they owe. Puerto Rico’s tax contribution is typically about the same as that of Vermont. In 2015, in the midst of crippling financial troubles, Puerto Rico sent just $3,524,557 to the federal government, compared with Vermont’s $4,495,280, according to the IRS.
Vermont, however, has two senators, votes in the election of the president and vice-president, and a voting member of the U.S. House of Representatives, while Puerto Rico has a single representative in the House who can only vote in committees to which he or she is assigned.
Vermont received about $8,965 per person in Federal funds in 2016, while Puerto Rico received about $1,314 per person.
The Atlantic sees a connection between Puerto Rico’s lack of democratic participation and its inequality in federal funding:
Since delegates are not permitted to vote on legislation that comes before the House, Washington, D.C., and the territories are silent when it comes to deciding federal appropriations on education, social welfare, infrastructure, and other critical concerns. That may partly describe why Puerto Rico and the territories rank far behind the 50 states in terms of total federal dollars spent per capita at $5,668 in 2010-23 percent less than the lowest state, Nevada, and less than one third the highest state in overall federal spending, Alaska. (2010 is the latest year for which data are available due to funding cuts at the Census Bureau; data for the District of Columbia were not available).
Looking only at federal aid to local and state/territorial governments, Puerto Rico received $1,848 per capita in 2010, 22 percent less than the $2,100 average per capita across the 50 states.
In other words, since Puerto Rico doesn’t have substantial representation in the legislature, legislative decisions are made that do not favor Puerto Rico.
The biggest disparities are in programs to ensure health care, to make work pay better for low-income workers with children, to provide a social safety net for the disabled and families with unemployed parents, and to ensure adequate nutrition. Puerto Rico is also shortchanged in investments in transportation and education that make it possible to increase well-paid jobs, purchasing by the Federal government, and Federal personnel, including some elements of law enforcement.
The Federal government experimented with assisting job creation in Puerto Rico by exempting income that companies in the States attributed to Puerto Rico but it found that too many companies got far more economic benefit than Puerto Rico did. Companies transferred income to Puerto Rico to avoid taxes on earnings attributable to work in the States. The experiment failed, with incomes in Puerto Rico slipping even further behind incomes in the States, and the policy was abandoned in 1996.
Denying Puerto Ricans — U.S. citizens by birth — access to or equal treatment in major Federal programs and votes in their national government has denied Puerto Rico’s economy money needed to develop, perpetuated poverty in the territory, and prompted millions of Puerto Ricans to move elsewhere in the nation where they are automatically treated equally with their fellow citizens.