Understanding Puerto Rico’s Problems – The New York Times (Aug. 5, 2015)

Paul Krugman is right that Puerto Rico is not Greece.(“America’s Un-Greek Tragedies,” column, Aug. 3)  But he doesn’t mention several important reasons this is the case.

One is that Puerto Rico has far more room to tax the top half of its economy. Tax collections of just 10 percent of gross domestic product place Puerto Rico behind the 13 percent average of very poor countries and light-years behind the 34 percent of rich developed countries, according to the July 11 issue of The Economist.

Even after engaging in deficit spending, the island and its municipalities spend less as a percentage of G.D.P. (about 11 percent) than all American states and their local governments. The results are deficient public investment in infrastructure, education, transportation, hygiene and public safety. These are all vital considerations for residents and investors.

Lavish tax exemptions and absurdly low real property taxes are gaping holes in the territory’s tax base. Multinationals and wealthy people are virtually untouched, so the government has borrowed its way into a deep hole.

At the same time, the island government failed to develop alternatives to manufacturing. The most evident mistake is the lack of sufficient investment in infrastructure for tourism and entertainment, sectors that remain grossly underdeveloped but that hold immense untapped potential.

DAVID R. MARTIN

Atlanta
The writer is the author of “Puerto Rico: The Economic Rescue Manual.”

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