In United States v. Vaello-Madero, the First Circuit Court of Appeals pointed out in its discussion over federal benefits that “[t]he residents of Puerto Rico not only make substantial contributions to the federal treasury, but in fact have consistently made them in higher amounts than taxpayers in at least six states[.]”
The contributions of different states and territories to the federal treasury vary a great deal. The United States doesn’t make funding decisions for states based on their contributions to the federal treasury. Prosperous states are not rewarded by having most of their contributions sent back to them in the form of government grants. Neither are less prosperous states given less funding because they don’t contribute as much to the federal government.
In the case of Puerto Rico, there is a tradition of claiming that the island gets less than states because residents generally don’t pay federal tax on their incomes beyond the payroll taxes that fund Social Security and Medicare. Since they don’t pay as much in, the story goes, they don’t get as much. However, the facts don’t bear that out.
Puerto Rico contributes to the U.S. Treasury
According to the IRS, Puerto Rico’s total contribution to the U.S. Treasury in 2019 was $3,528,739,000.
For comparison, Vermont paid $4,505,097,000 and Wyoming paid $4,743,997,000.
In 2012, before the hurricanes, earthquakes, pandemic, and financial collapse affected Puerto Rico’s economy, Puerto Rico paid $3,067,234,000 compared with Vermont’s $3,524,887,000 and Wyoming’s $3,828,379,000.
In other words, Puerto Rico residents contribute 0.10% of total federal tax revenues, whereas Wyoming and Vermont residents contribute 0.13% each.
Contributions don’t determine funding
The payments sent in by a State are not considered in federal funding decisions. So the State of Virginia, which contributes about $10,000 per person to the U.S. Treasury, receives more than $20,000 per person in federal funding of various kinds.
Wallet Hub’s annual analysis of State contributions relative to their receipts shows the States that are least dependent in white and those that are most dependent in dark teal.
An analysis of 2004 and 2010 data submitted to the U.S. Senate Committee on Finance found that one third of the 50 States were more dependent on federal funds than Puerto Rico. “There is no reason to think that 2004 and 2010 were unusual with respect to federal expenditures and taxes,” said the study’s authors.
“Seventeen states and the District of Columbia received more in net federal expenditures per capita than did Puerto Rico,” they concluded. “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 in Puerto Rico from the federal government. ”
Puerto Rico’s Tax Deal?
Constitutional law scholar Christina D. Ponsa-Kraus recently pointed out in the New York Times that “[m]any Americans believe that Puerto Rico’s colonial status reflects some sort of deal to trade the right to federal representation for a break from federal taxes.”
She further points out, however, that Puerto Ricans “pay for their federal tax break with significantly reduced federal benefits.”
United States v. Vaello-Madero makes this dynamic clear in the context of federal SSI benefits.
As Ponsa-Kraus concludes, “the deeper problem with the “tax deal” view of Puerto Rico’s status is that the principles of American democracy forbid such a Faustian bargain. In a democracy, the right to vote is not for sale. That’s why a majority of Puerto Ricans have chosen statehood, and why Congress should admit Puerto Rico now.”