The Economics of Statehood

In the course of U.S. history, thirty-two territories have transitioned to become States of the Union, and it is easy to forget that all of them had anti-statehood factions.

In Hawaii, where 90% of registered voters turned out for the statehood vote and the results were seventeen to one in favor of statehood, anti-statehood forces mostly worried about Communism taking over in Hawaii if it became a state.

Alaska’s anti-statehood faction was concerned that being a state would be too expensive. Arizona’s statehood movement was tangled up with the movement for women’s suffrage to the point of widespread confusion.

But anti-statehood arguments for the states of the 20th century, the 19th century, and even the earliest states didn’t dwell on the possible costs to the United States. Discussions of statehood didn’t ask,  “Can the U.S. afford Colorado?” or “How much will Wisconsin take from my pocket?”

And yet discussions of Puerto Rico statehood often bring up precisely these questions.

“Making Puerto Rico the 51st state would only add another mass of people who want to live on welfare,” one recent comment ran. “We don’t need another money pit.” This kind of remark is based on some assumptions. The facts are different.

Puerto Rico is not a liability

In 2014, the Government Accountability Office prepared a report estimating that Puerto Rico as a state could receive $5 to $10 billion more from federal programs than it does as a territory. The GAO figured that Puerto Rico as a state might bring in as much as $2.3 billion in additional federal taxes from individuals and $9.3 billion in corporate taxes. The report included a great deal of uncertainty, since it rested on a number of assumptions about what might happen in the future.

Read more about the 2014 GAO report

However, using the best possible data and methodology, the GAO provided data that does not support a claim that Puerto Rico would cost the federal government much more as a state than as a territory.

Territories, on the other hand, inevitably bring in less revenue than states. Hawaii’s real personal income increased at a rate of 4% per year in the transition from territory to State. Oregon’s population tripled in its first 20 years of statehood. The new state of Michigan had such an economic boom that it became a bubble — which burst. It took a decade to rebuild the economy, but it never fell to pre-statehood levels. Each State has its own story, but every one shows that statehood brings prosperity.

A prosperous state of Puerto Rico will certainly bring in more money for the federal government than an impoverished territory of Puerto Rico.

The United States is already responsible for Puerto Rico

Comments at news sites and in social media sometimes show an entirely un-American spirit, replacing “Give me your poor…” with “Don’t ask me to help.” But they also imply that the United States would become responsible for Puerto Rico if the Island became a State.

In fact, the United States is already responsible for Puerto Rico. The United States owns Puerto Rico. No other nation bears any responsibility for Puerto Rico.

Nearly half the population of Puerto Rico lives in poverty, compared with 12.3% of the U.S. citizens living in the States. The federal government has the legal right to treat territories differently from States, so there would be some additional costs when Puerto Rico becomes a State. However, the inequality of U.S. citizens living in Puerto Rico is already America’s problem.

Puerto Ricans can already live in a state

Since people born in Puerto Rico can move to a State just as easily as people born in a State can move to any other State, one solution to the inequity in Puerto Rico is to move to a State. Upon settling in Florida or South Carolina or Vermont, a U.S. citizen from Puerto Rico immediately becomes eligible for all the benefits of living in a State.

Public education, publicly funded healthcare, public nutrition assistance, and all other federal and State welfare programs are readily available for anyone willing to leave Puerto Rico for the mainland.

There are more than 5 million people of Puerto Rican descent living in the States, and about 3.2 million living in Puerto Rico. 8% of Puerto Ricans living in States rely on public assistance. That means that 92% do not. This does not support the idea that Puerto Ricans are waiting eagerly to “live on welfare.”

The dwindling population of Puerto Rico is an economic problem for the Island. But it shows that Puerto Ricans already have the option of accepting more from the federal government, if they choose to move. As a State, Puerto Rico will probably see population growth (as other territories have, when they became States). Until then, the costs of supporting people who need help can be shifted to the States.

The United States has never required territories to become solvent before becoming States. Territories have become States when they were at war, during droughts, and in the midst of financial crises. The idea that poverty makes a territory unsuitable for statehood is a misconception.