Amid the colorful homes of Old San Juan lies an abandoned building adorned with a black-and-white striped flag. Painted over the original red, white, and blue colors of Puerto Rico, the monochrome flag is a symbol of resistance against US economic control and political mismanagement.
In 2012, the Puerto Rican legislature passed Acts 20 and 22—also known as the Export Services and Individual Investors Acts—to incentivize new residents and investors to move to the island. While the acts succeeded in bringing more wealth to the island, the government largely cannot trace or tax it, and the everyday Puerto Rican only sees its effects in higher home and food prices. Rather than resolving Puerto Rico’s financial crisis, these acts have only served to reinforce colonial systems of oppression.
The United States has maintained an exploitative economic relationship with Puerto Rico since its annexation in 1898. US corporations established sugar and tobacco plantations, transforming Puerto Rico into a dependent, agrarian economy and continuing the exploitation started by Spain. Beginning in 1947, Operation Bootstrap attempted to industrialize Puerto Rico’s economy through tax incentives. In a similar fashion, Section 936, enacted in 1976, created tax exemptions that incentivized US companies—particularly in the pharmaceutical industry—to move to Puerto Rico. As a result of these policies, Puerto Rico has become reliant on investment from the mainland United States. When the US Congress repealed Section 936 in 2006, the island plunged into an economic crisis.
While Acts 20 and 22 respond to a real economic challenge, they fall into the same trap of relying on investment from the mainland United States. For example, Act 20 focuses on bringing new businesses to the island that export services to other jurisdictions. One appealing benefit is that businesses earning over $3 million in annual revenue are 100 percent exempt from Puerto Rico’s income tax, and these businesses only pay 4 percent corporate tax rates. The only catch: They must have at least one Puerto Rican employee. These generous terms enable businesses to exploit Puerto Rican labor and land while contributing almost nothing in return.
Act 22 focuses on attracting new residents and similarly sells out Puerto Rican interests in the name of illusory economic gains. Under the act, new residents of Puerto Rico can benefit from large tax exemptions with the following conditions: They must reside at least 183 days of the year in Puerto Rico, donate $10,000 per year to nonprofit organizations on the island, and purchase a home in Puerto Rico during their first two years of residency. None of the act’s benefits are relevant to local residents. US Congressman Chuy García (D-IL), an advocate for the end of Act 22, maintains that “Puerto Rico’s Act 22 tax loophole was sold as an economic boost in the shadow of a recession. Instead, wealthy investors, speculators, and influencers like Logan Paul are part of a new generation of tax-evading gentrifiers flocking to the island and displacing Puerto Ricans.”
To make matters worse, beneficiaries of Act 22 have the right to vote in Puerto Rico, giving them explicit political influence over the island. Enfranchising the foreigner-investor class makes it even harder for native Puerto Ricans to exert influence over their own legislature and represents their government’s wholesale abandonment of their local identity. The island has become nothing more than a commercial entity, with decision-making rights auctioned off to the highest bidder.
After 127 years of living under US annexation, the Puerto Rican government must reform Acts 20 and 22 to empower Puerto Ricans both politically and economically. With 39.6 percent of Puerto Ricans living under the federal poverty level, the island needs structural economic changes that bring long-term prosperity, not corporate giveaways. Acts 20 and 22 were approved by former Governor Luis Fortuño in 2012, perhaps inspired by his experience as the executive director of the Puerto Rico Tourism Company in 1994. While these acts were meant to help generate job opportunities and resolve the economic crisis that has plagued the island since 2006, they merely represent the continuation of a long legacy of tax exemption policies—like Section 936—that increase dependency on the United States and enrich large corporations. Acts 20 and 22 also harm everyday Puerto Ricans by increasing housing prices and amplifying gentrification. They should be repealed and replaced with a more equitable solution that prioritizes the needs of Puerto Ricans, not corporations and the uber-wealthy.