Island of Enchantment - Economy

Economy

In the early 20th century the greatest contributor to Puerto Rico's economy was agriculture and its main crop was sugar. In the late 1940s a series of projects codenamed Operation Bootstrap encouraged a significant shift to manufacture via tax exemptions. Manufacturing quickly replaced agriculture as the main industry of the island. Puerto Rico is classified as a "high income country" by the World Bank.

Economic conditions have improved dramatically since the Great Depression because of external investment in capital-intensive industries such as petrochemicals, pharmaceuticals and technology. Once the beneficiary of special tax treatment from the U.S. government, today local industries must compete with those in more economically depressed parts of the world where wages are not subject to U.S. minimum wage legislation. In recent years, some U.S. and foreign owned factories have moved to lower wage countries in Latin America and Asia. Puerto Rico is subject to U.S. trade laws and restrictions.

Also, starting around 1950, there was heavy migration from Puerto Rico to the Continental United States, particularly New York City, in search of better economic conditions. Puerto Rican migration to New York displayed an average yearly migration of 1,800 for the years 1930–1940, 31,000 for 1946–1950, 45,000 for 1951–1960, and a peak of 75,000 in 1953. As of 2003, the U.S. Census Bureau estimates that more people of Puerto Rican birth or ancestry live in the U.S. than in Puerto Rico.

On May 1, 2006, the Puerto Rican government faced significant shortages in cash flows, which forced the closure of the local Department of Education and 42 other government agencies. All 1,536 public schools closed, and 95,762 people were furloughed in the first-ever partial shutdown of the government in the island's history. On May 10, 2006, the budget crisis was resolved with a new tax reform agreement so that all government employees could return to work. On November 15, 2006, a 5.5% sales tax was implemented. Municipalities are required by law to apply a municipal sales tax of 1.5% bringing the total sales tax to 7%.

Tourism is an important component of Puerto Rican economy supplying an approximate $1.8 billion. In 1999, an estimated 5 million tourists visited the island, most from the U.S. Nearly a third of these are cruise ship passengers. A steady increase in hotel registrations since 1998 and the construction of new hotels and new tourism projects, such as the Puerto Rico Convention Center, indicate the current strength of the tourism industry. In 2009, tourism accounted for nearly 7% of the islands' gross national product.

Puerto Ricans had median household income of $18,314 for 2009, which makes Puerto Rico's economy comparable to the independent nations of Latvia or Poland. By comparison, the poorest state of the Union, Mississippi, had median household income of $36,646 in 2009. Nevertheless, Puerto Rico's GDP per capita compares favorably to other independent Caribbean nations, and is one of the highest in North America. See List of North American countries by GDP per capita.

The public debt of Puerto Rico has grown at a faster pace than the growth of its economy, reaching $46.7 billion in 2008. In January 2009, Luis Fortuño enacted several measures aimed at eliminating the government's $3.3 billion deficit, including laying off 12,505 government employees. Puerto Rico's unemployment rate was 15.9 percent in January 2010. Some analysts said they expect the government's layoffs to propel that rate to 17 percent.

In November 2010, Gov. Fortuño proposed a tax reform plan that would be implemented in a six-year period, retroactive to January 1, 2010. The first phase, applicable to year 2010, reduces taxes to all individual taxpayers by 7–15%. By year 2016, average relief for individual taxpayers will represent a 50% tax cut and a 30% cut for corporate taxpayers, whose tax rate will be lowered from 41 to 30%.

At the same time, the latest report by the President Task Force on Puerto Rico Status recognizes that the status question and the economy are intimately linked. Many participants in the forums conducted by the Task Force argued that uncertainty about status is holding Puerto Rico back in economic areas. And although there are a number of economic actions that should be taken immediately or in the short term, regardless of the ultimate outcome of the status question, identifying the most effective means of assisting the Puerto Rican economy depends on resolving the ultimate question of status. In short, the long-term economic well-being of Puerto Rico would be dramatically improved by an early decision on the status question.