The board has spoken: Puerto Rico to be hit with painful austerity measures
The newly appointed head of a federal control board that oversees Puerto Rico's finances warned on Tuesday that the U.S. territory will be hit with painful austerity measures in upcoming months.
Interim Director Ramon Ruiz said there are no other options given the island's dire economic situation and recommended that the government act quickly.
"We allowed this to reach too critical of a point," he said. "Everyone will be impacted by the decisions that will be made."
Gov. Ricardo Rossello has until next Tuesday to submit a revised fiscal plan that will outline where the cuts will be made and what essential services will be affected.
Read more: http://www.businessinsider.com/the-board-has-spoken-puerto-rico-to-be-hit-with-painful-austerity-measures-2017-2
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corporations.
"Tax policy[edit]
A federal statute that contributed to the crisis was the expiration of section 936 of the U.S. Internal Revenue Code, which applied to Puerto Rico.[m] This section was critical for the economy of the island as it established tax exemptions for U.S. corporations that settled in Puerto Rico and allowed its subsidiaries operating in the island to send their earnings to the parent corporation at any time, without paying federal tax on corporate income. The whole economy of the island based itself around this privilege, and has been unable to recoup after its loss.[m]
Disparity in federal social funding[edit]
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This section is missing information about Puerto Rico's lax requirements to qualify for Medicaid. Please expand the section to include this information. Further details may exist on the talk page. (August 2015)
More than 60% of Puerto Rico's population receives Medicare or Medicaid services, with about 40% enrolled in Mi Salud, the Puerto Rican Medicaid program.[15] There is a significant disparity in federal funding for these programs when compared to the 50 states, a situation started by Congress in 1968 when it placed a cap on Medicaid funding for United States territories.[15] This has led to a situation where Puerto Rico might typically receive $373 million federal funding a year, while, for instance, Mississippi receives $3.6 billion.[15] Not only does this situation lead to an exodus of underpaid health care workers to the mainland, but the disparity has had a major impact on the finances of Puerto Rico.[15]
Triple tax exemption[edit]
Interest income paid to owners of bonds issued by the government of Puerto Rico and its subdivisions are exempt from federal, state, and local taxes (so called "triple tax exemption"
.[f] Unlike most other US triple tax exempt bonds, Puerto Rican bonds retain tax exemption regardless of where the bond holder resides in the United States,[e][f][g] a marketing and sales advantage consequent to the restriction typically imposed on municipal bonds with triple tax exemption in which exemptions are available to bond holders that reside within the state or municipal subdivision that issues the bonds. Triple tax exempt bonds are considered subsidized because bond issuers can offer a lower interest rate to satisfy bond holders; as a result, Puerto Rico can issue more debt.[clarification needed]"
