Puerto Rico, At 11.5%, Has America's Highest Sales Tax

People who advocate for large governments usually view them as a “progressive” tool that impels the rich to help the poor. But when said governments get too bloated and inefficient—as they inevitably seem to—they become something that everyone must support. This is now happening in Puerto Rico, which recently addressed its fiscal problems by jacking up the sales tax. This is a regressive move that could hurt the island’s bottom line, and undoubtedly its many poor people.
On July 1, Puerto Rico raised its Sales and Use Tax (SUT) from 7% to 11.5%, through leadership from the legislature and Democratic governor Alejandro Garcia Padilla. 10.5% of this is imposed by Puerto Rico’s Department of Treasury, and the additional percent goes to municipalities. Together, the 11.5% rate is over two percentage points higher than Tennessee’s, which has the next highest state rate at 9.45%, and over one point above Chicago, which will soon have the highest rate for a U.S. mainland major city. In addition, Puerto Rico will soon charge a 4% rate on professional services. Insofar as such services are used to produce goods, this will be another, hidden tax for consumers. Starting in April of 2016, the SUT will transform into a Value Added Tax (VAT)–which taxes the broader chain of production–and this too will be set at 11.5%.
This tax increase was viewed as a way for Puerto Rico to pay its debts and win creditors’ respect. The island is $72 billion in debt, and recently defaulted on a $58 million bond payment. Part of this debt results from a famously corrupt and inefficient political system that keeps large percentages of people on the public doll, either through welfare or government employment. But the other factor is that the island, which has been in recession since 2006, simply isn’t generating enough revenue. So it decided to follow other heavily-indebted, public-sector-dominated nations like Spain and Greece, by creating a double-digit VAT.
This idea seems especially bad here for two reasons. The first is that Boricuas have less spending power—defined by an $18,660 median household income—and will be more burdened than would the average mainland American. The second is that Puerto Rico’s economy heavily depends on consumption—namely from tourists—which is an activity discouraged by high sales taxes.
“Right now for our economy, it’s too much,” said David Punaro Torres, a local artist who works in the touristy Old San Juan neighborhood. He explained that between the federal Jones Act, which increases shipping costs, and Puerto Rico’s 6.6% import tariff, products are already overpriced, and this will worsen with the high tax. “A chicken that might cost five bucks, you have to buy it for seven or ten bucks…[because] you have to deal with the system.”
Scott Beyer

Puerto Rico, At 11.5%, Has America's Highest Sales Tax

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