Taxes

Taxes started as a person’s tribute to the leader of the group, later to the chieftain or king for his own personal use, most of the time to fund his or her wars. Except for open rebellion, there was not much people could do to stop a sovereign from imposing the taxes it wanted. He/She alone had to power to impose taxes.

 

One of the first attempts to stop this monopoly over the power to impose taxes came with the Magna Carta rebellion in England. By 1215 it limited the power of the King by imposing the duty to consult with Parliament before increasing taxes. It also dealt with taxes twin sister, public debt. Later, in the 17th  century, the struggle for power between the King and Parliament over taxes continued culminating in the Glorious Revolution of 1688 and the power to tax was shared between the King and Parliament, much the same way we do today.

 

It is common knowledge that Americans do not like taxes and have not liked them since they were a colony of Great Britain. Taxes were a mayor reason for the War of Independence and even today, spend and tax is a derisory phrase. But not in Puerto Rico.

 

Modernly taxes, especially state taxes, are used for infrastructure and other social spending and of course, to fund the government and its employees. Puertorricans may love big government but they do everything they can to avoid paying taxes. But since they love the government to give them services and jobs, the political parties oblige them in order to be elected.

 

Since politicians want to be reelected, they support bloated payroll in both the government and public corporations. Since this means greater expenditures, since 2000 the government has reverted to borrowing to continue the spending.

 

Now the chickens have come to roost. Public debt is over $72 billion and April’s revenues were 27% below expectations. This does not abode well for a balanced budget, even one dependent, before this news, on $540 million in additional taxes. And herein lies the rub, the purpose of taxes has been corrupted in the island.

 

Puerto Rico collects taxes in order to support its bloated bureaucracy. The present administration raised the tax burden on more than $1.6 billion a year, plus increases in the water and electricity bills for the same purpose. Allegedly they did it to prevent the downgrade but it still happened. The administration does not understand that you don’t grow and economy by imposing taxes. It takes money from the productive forces in the island, its citizens, not for investment but for its own use without understanding that it is highway robbery and it kills the economy. Now, the administration has stated its intention of issuing $1.5 billion in COFINA bonds and $500 million in COFIM. It continues to refuse to fire its permanent employees.

 

Moreover, there is a persistent rumor, not yet disclaimed by the Government, that it will place a 20% tax on deposits over $500 or a 20% freeze over the same minimum account until the taxpayer shows the funds are legitimate. Only a rumor but it shows to what extreme the taxpayers believe the government will go in order to continue funding its bloated bureaucracy.

 

Puerto Rico must face its reality. It cannot continue to fund its bloated bureaucracy, it needs to drastically reduce expenses, including firing a number of employees and reduce taxes. Nothing else will do. But the government will not do it and hence will run out of money as the economy continues to contract.

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