Misguided Plan for Puerto Rico Would Set Dangerous Precedent

Puerto Rico faces an imminent financial crisis caused by decades of economically harmful policies, prolific government spending, and broken—if not corrupt—governance.

Claiming that this U.S. territory has no options on its own, the President and some Members of Congress have called for a bailout of Puerto Rico, including access to retroactive bankruptcy and other federal supports. This would set a dangerous and unaffordable precedent. Municipal and state governments throughout the U.S. have accumulated trillions of dollars in debt and unfunded liabilities that will be extremely difficult—if not impossible—to pay off. Policymakers must tread lightly with Puerto Rico, realizing that it is only the first of many economically and fiscally troubled governments that will come seeking a federal bailout.

While Congress should not retroactively change existing law by granting Puerto Rico access to Chapter 9 bankruptcy, providing open-end financial assistance through welfare and federal tax benefits, or investing in political oversight without enforcement, there are some things Congress can do to remove some of harmful regulations that contribute to Puerto Rico’s distress: Congress should exempt Puerto Rico from the maritime Jones Act, which roughly doubles shipping costs; eliminate or reduce the federal minimum wage in Puerto Rico; and allow the island flexibility in administering federal welfare benefits so that individuals are better off working than collecting welfare. Moreover, Congress should consider removing the federal tax deduction for Puerto Rican bonds (a deduction not available for U.S. state bonds), which made it easier and cheaper for Puerto Rico to accumulate its $72 billion deficit.

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