6 ms·

I'm no expert on these matters, but it's the internet so I have an opinion. These territories face a catch-22: to the extent they raise taxes they become less

I'm no expert on these matters, but it's the internet so I have an opinion. These territories face a catch-22: to the extent they raise taxes they become less attractive to the Super Rich (well outside investment in general). You might also end up with a race to the bottom scenario, where taxes go to zero, labor laws go to heck. You actually see all of these issues and more in practice so it is not just theoretical. It is a difficult quandary to escape from. You basically need an engine for real organic growth that doesn't rely on tax gimmicks. Finally, I think Puerto Rico itself also suffers from an artificial handicap with respect to the Jones Act.

debacle 8y ago
The article mentions that parts of the island haven't been reassessed for property taxes in 60 years.
- Kalium 8y ago
  Who do they think they are, California?
  - tasty_freeze 8y ago
    Do you honestly hold that opinion, or did you think you were on reddit? Cities in California (re)assess property values just like they do everywhere else. Go buy a house there and tell me that your assessed value is about right for a house in 1958.
    - jwc1 8y ago
      Have you ever read about Prop 13? Basically it set property tax rates at 1% of a property’s sale price and capped annual increases at no more than 2%. The only time a house sees fair reassessment is when it sells...which means a lot of people end up sitting on land. http://www.latimes.com/opinion/op-ed/la-oe-friedersdorf-prop-13-20180604-story.html http://www.latimes.com/opinion/op-ed/la-oe-friedersdorf-prop... "Perhaps most perversely, Proposition 13 has made it harder, not easier, to become a homeowner. California has one of the lowest rates of homeownership (55%) in the nation, second only to New York and nine percentage points below the national average. The pernicious incentives that led to these outcomes are obvious in hindsight. With property taxes near frozen, local governments began to see residential development as a liability and commercial development as an income stream. For 40 years, that perspective shaped which new projects cities approved. Homeowners, meanwhile, had a disincentive to move if they had a low property tax bill locked in. Finally, these relatively low property taxes made California an attractive place to undertake speculative real estate investments and leave valuable parcels of land undeveloped."
      - johnvanommen 8y ago
        Everything you said is correct. One thing I'd add, is that Prop 13 also discourages any kind of mobility. For instance, my Mom often talked about moving to a different town, but she didn't, because her property taxes were so darn low. She's lived in the same home for over 40 years and if she relocated, her cost-of-living would go through the roof, due to higher property taxes.
    - mikeyouse 8y ago
      Here's a property for sale in Saratoga, currently on the market for $20M -- paying property taxes of $6k/year (a rate of 0.03%). Tell me more about how California assesses property like everyone else. Happy to subsidize the obscenely wealthy. https://www.zillow.com/homes/for_sale/19657362_zpid/ https://www.zillow.com/homes/for_sale/19657362_zpid/ (See property taxes paid in the bottom Price/Tax History dropdown).
    - Kalium 8y ago
      I think I'm a homeowner in California. Property taxes here most definitely do not work like they do in Texas.
chimeracoder 8y ago
> Finally, I think Puerto Rico itself also suffers from an artificial handicap with respect to the Jones Act. The Jones Act has prevented Puerto Rico from ever building a solid, stable economy of its own. It's the reason Puerto Rico's economy was in shambles long before Hurricane Maria hit. As long as the Jones Act is in place, Puerto Rico doesn't have an economic future. They've experienced a massive brain drain over the last few decades, because everyone on the island can relocate to the mainland, where everything is cheaper (due to the Jones Act) and there are more lucrative jobs. This creates a vicious cycle which is still ongoing.
- Vivtek 8y ago
  The economic problems of Puerto Rico go way beyond the Jones Act. As long as your item is lightweight, you can turn a reasonable profit here - all the Viagra made for the North American market is made here, and other pharma companies have strong representations. CooperVision sells something like 3 billion pairs of contact lenses a year, made in their plant in Juana Diaz. So it's a disadvantage - and one that has absolutely no relevance to the issues of the twenty-first century and that should long since have been retired (and arguably never passed, or had exemptions made for American islands) - but it's not a showstopper. No, the real bar to a solid, stable local economy has simply been the ready availability of mainland capital. Anything you see the hedge funds doing in the Midwest was prototyped here first. The entire development strategy of offering tax rebates to relocate manufacturing was invented by Puerto Rico - the idea was that those manufacturing centers would lead to local management and a robust secondary technical and supply economy. This never happened - the mainland companies brought their own managers and continued buying from their established suppliers on the mainland. Puerto Rico was a convenient source of well-trained but very inexpensive labor. There's a lot of detail. I can't claim to have done more than scratched the surface. But mere abolition of the Jones Act wouldn't be enough, sadly. Not that it will happen regardless.
  - chimeracoder 8y ago
    > But mere abolition of the Jones Act wouldn't be enough, sadly. I never said that the abolition of the Jones Act would be sufficient. But I am saying it's necessary; as long as the Jones Act is in full force, Puerto Rico has no hope at a stable economic future.
logfromblammo 8y ago
What you do is you hide a land mine inside the law. In this case, I think it's probably the bit about having no significant ties with the mainland. Maybe the number of days on the island, or something to do with the "one minute" rule. So you let them move in, thinking they legally owe no taxes, and meanwhile, you gather the evidence related to your land mine and then wait. You sit on it. For years. Then you blow up the mine and demand a heaping pile of back taxes. You can then settle for less than the amount you are demanding, so nobody goes to court and no precedents are set, but you still get the cash. The mistake people make is in thinking they can use the law to put on over on the government, when the government makes and enforces the laws. All those people in the article were getting the best tax deal an American can even dream of, and some were still openly discussing ways in which they could cheat the requirements! It seems like all you might have to do to catch a cheater is just watch someone for a day or two, or record them during a few minutes of bragging. They say you can't cheat an honest man, but you sure can con a cheater.
- adambyrtek 8y ago
  They could theoretically do that, but this would only work once, so it's not a sustainable economic strategy.
  - logfromblammo 8y ago
    > not a sustainable economic strategy See also: the entire history of Puerto Rican tax incentives.
    - Vivtek 8y ago
      When they were invented, they did what they were supposed to - in 1943, nobody had ever done this. In 1943, the mean annual income on the island was $142. The economic boom that followed on the tax incentive plan made Puerto Rico's mean income the highest in Latin America, built was was, in 1972, one of the finest electric grids in the world, and led among other things to an automobile-per-capita rate that's even higher than the rest of the United States. Unfortunately, the heirs of the architects of those policies had no idea why they worked. So as world economic conditions changed, they just doubled down on the cargo cult, and stagnation followed. Then Congress decided it wasn't fair to prop up large businesses who were taking advantage of cheap labor, and yanked the rug out from under the whole scheme in 2006. So far, nobody has had a good answer to that.
fastball 8y ago
If you can't be a self-sustaining region without being a tax haven then maybe you shouldn't be a populated region.
- leetcrew 8y ago
  okay, what should we do about all the people on the island then?
  - fastball 8y ago
    They should move, as any population should when their homeland can no longer sustain them?
    - s73v3r_ 8y ago
      With what money?
- DennisP 8y ago
  The U.S. is a popular tax haven for people in other countries, and the City of London is the center of a whole network of tax havens. It's not just remote islands looking for a way to scrape by. A great book on how it all works is Treasure Islands by Nicholas Shaxson.
- liberte82 8y ago
  Let's blame the people then, not the colonizers who got this whole system set up in the first place, eh?
- cycrutchfield 8y ago
  What percent of US states are not "self-sustaining regions", by the measure of net contribution to the federal coffers?

debacle 8y ago

The article mentions that parts of the island haven't been reassessed for property taxes in 60 years.

Kalium 8y ago
Who do they think they are, California?
- tasty_freeze 8y ago
  Do you honestly hold that opinion, or did you think you were on reddit? Cities in California (re)assess property values just like they do everywhere else. Go buy a house there and tell me that your assessed value is about right for a house in 1958.
  - jwc1 8y ago
    Have you ever read about Prop 13? Basically it set property tax rates at 1% of a property’s sale price and capped annual increases at no more than 2%. The only time a house sees fair reassessment is when it sells...which means a lot of people end up sitting on land. http://www.latimes.com/opinion/op-ed/la-oe-friedersdorf-prop-13-20180604-story.html http://www.latimes.com/opinion/op-ed/la-oe-friedersdorf-prop... "Perhaps most perversely, Proposition 13 has made it harder, not easier, to become a homeowner. California has one of the lowest rates of homeownership (55%) in the nation, second only to New York and nine percentage points below the national average. The pernicious incentives that led to these outcomes are obvious in hindsight. With property taxes near frozen, local governments began to see residential development as a liability and commercial development as an income stream. For 40 years, that perspective shaped which new projects cities approved. Homeowners, meanwhile, had a disincentive to move if they had a low property tax bill locked in. Finally, these relatively low property taxes made California an attractive place to undertake speculative real estate investments and leave valuable parcels of land undeveloped."
    - johnvanommen 8y ago
      Everything you said is correct. One thing I'd add, is that Prop 13 also discourages any kind of mobility. For instance, my Mom often talked about moving to a different town, but she didn't, because her property taxes were so darn low. She's lived in the same home for over 40 years and if she relocated, her cost-of-living would go through the roof, due to higher property taxes.
  - mikeyouse 8y ago
    Here's a property for sale in Saratoga, currently on the market for $20M -- paying property taxes of $6k/year (a rate of 0.03%). Tell me more about how California assesses property like everyone else. Happy to subsidize the obscenely wealthy. https://www.zillow.com/homes/for_sale/19657362_zpid/ https://www.zillow.com/homes/for_sale/19657362_zpid/ (See property taxes paid in the bottom Price/Tax History dropdown).
  - Kalium 8y ago
    I think I'm a homeowner in California. Property taxes here most definitely do not work like they do in Texas.

chimeracoder 8y ago

> Finally, I think Puerto Rico itself also suffers from an artificial handicap with respect to the Jones Act. The Jones Act has prevented Puerto Rico from ever building a solid, stable economy of its own. It's the reason Puerto Rico's economy was in shambles long before Hurricane Maria hit. As long as the Jones Act is in place, Puerto Rico doesn't have an economic future. They've experienced a massive brain drain over the last few decades, because everyone on the island can relocate to the mainland, where everything is cheaper (due to the Jones Act) and there are more lucrative jobs. This creates a vicious cycle which is still ongoing.

Vivtek 8y ago
The economic problems of Puerto Rico go way beyond the Jones Act. As long as your item is lightweight, you can turn a reasonable profit here - all the Viagra made for the North American market is made here, and other pharma companies have strong representations. CooperVision sells something like 3 billion pairs of contact lenses a year, made in their plant in Juana Diaz. So it's a disadvantage - and one that has absolutely no relevance to the issues of the twenty-first century and that should long since have been retired (and arguably never passed, or had exemptions made for American islands) - but it's not a showstopper. No, the real bar to a solid, stable local economy has simply been the ready availability of mainland capital. Anything you see the hedge funds doing in the Midwest was prototyped here first. The entire development strategy of offering tax rebates to relocate manufacturing was invented by Puerto Rico - the idea was that those manufacturing centers would lead to local management and a robust secondary technical and supply economy. This never happened - the mainland companies brought their own managers and continued buying from their established suppliers on the mainland. Puerto Rico was a convenient source of well-trained but very inexpensive labor. There's a lot of detail. I can't claim to have done more than scratched the surface. But mere abolition of the Jones Act wouldn't be enough, sadly. Not that it will happen regardless.
- chimeracoder 8y ago
  > But mere abolition of the Jones Act wouldn't be enough, sadly. I never said that the abolition of the Jones Act would be sufficient. But I am saying it's necessary; as long as the Jones Act is in full force, Puerto Rico has no hope at a stable economic future.

logfromblammo 8y ago

What you do is you hide a land mine inside the law. In this case, I think it's probably the bit about having no significant ties with the mainland. Maybe the number of days on the island, or something to do with the "one minute" rule. So you let them move in, thinking they legally owe no taxes, and meanwhile, you gather the evidence related to your land mine and then wait. You sit on it. For years. Then you blow up the mine and demand a heaping pile of back taxes. You can then settle for less than the amount you are demanding, so nobody goes to court and no precedents are set, but you still get the cash. The mistake people make is in thinking they can use the law to put on over on the government, when the government makes and enforces the laws. All those people in the article were getting the best tax deal an American can even dream of, and some were still openly discussing ways in which they could cheat the requirements! It seems like all you might have to do to catch a cheater is just watch someone for a day or two, or record them during a few minutes of bragging. They say you can't cheat an honest man, but you sure can con a cheater.

adambyrtek 8y ago
They could theoretically do that, but this would only work once, so it's not a sustainable economic strategy.
- logfromblammo 8y ago
  > not a sustainable economic strategy See also: the entire history of Puerto Rican tax incentives.
  - Vivtek 8y ago
    When they were invented, they did what they were supposed to - in 1943, nobody had ever done this. In 1943, the mean annual income on the island was $142. The economic boom that followed on the tax incentive plan made Puerto Rico's mean income the highest in Latin America, built was was, in 1972, one of the finest electric grids in the world, and led among other things to an automobile-per-capita rate that's even higher than the rest of the United States. Unfortunately, the heirs of the architects of those policies had no idea why they worked. So as world economic conditions changed, they just doubled down on the cargo cult, and stagnation followed. Then Congress decided it wasn't fair to prop up large businesses who were taking advantage of cheap labor, and yanked the rug out from under the whole scheme in 2006. So far, nobody has had a good answer to that.

fastball 8y ago

If you can't be a self-sustaining region without being a tax haven then maybe you shouldn't be a populated region.

leetcrew 8y ago
okay, what should we do about all the people on the island then?
- fastball 8y ago
  They should move, as any population should when their homeland can no longer sustain them?
  - s73v3r_ 8y ago
    With what money?
DennisP 8y ago
The U.S. is a popular tax haven for people in other countries, and the City of London is the center of a whole network of tax havens. It's not just remote islands looking for a way to scrape by. A great book on how it all works is Treasure Islands by Nicholas Shaxson.
liberte82 8y ago
Let's blame the people then, not the colonizers who got this whole system set up in the first place, eh?
cycrutchfield 8y ago
What percent of US states are not "self-sustaining regions", by the measure of net contribution to the federal coffers?