Will Puerto Rico become the test case for an Eventual .S. Consumption tax.

Discussion in 'Economics' started by piezoe, Mar 4, 2015.

  1. piezoe

    piezoe

    The Commonwealth of Puerto Rico's government is uncompromisingly corrupt. Nepotism, kickbacks and cronyism are rampant and an integral part of the traditional way of doing business. Cheating on the Island income tax is rampant. (For example, the median income reported by physicians last year was in the neighborhood of $16,000! when actual income is not that different from income in the the States.)

    The government is broke, its bonds are junk. The Government pension fund is in trouble. There are minions of poor and desperate among the Mercedes and BMWs. The formerly Beautiful Campus of the Main University in Rio Piedras is overgrown with weeds and class rooms lack working air conditioning, hallways are decorated with grafitti. The low tuition can't support the University and its multiple campuses; neither can the government.

    What to do? Governor Padilla has laid a sweeping new tax reform package on the table that is being hotly debated, but looks, amid the protests, as though it will pass. Essentially, the island will go to a 16% VAT from its current 7% sales and use tax. The original proposal includes retaining an income tax for income above 40K for individuals, 80K for couples, on top of the VAT. The idea is that the VAT will catch at least part of the tax owed by the many tax cheats. In addition, there are VAT exemptions for basic items needed for subsistence.

    Should this proposal succeed in rescuing the financially besieged Island, it may become a model for a consumption Tax in the U.S. Whereas, U.S. politicians thumb their noses at things European, such as VAT taxes, preferring to make their own mistakes, would they be as reluctant to accept an idea from a U.S. Territory?

    http://www.bondbuyer.com/news/regio...or-proposes-major-tax-overhaul-1070366-1.html
     
  2. Tsing Tao

    Tsing Tao

    Having lived in Puerto Rico for several years, I find the article to be quite accurate. Incredible layers of corruption, and a massive black market of goods and services (not sure a VAT will capture enough of that to make a difference).

    Did you know the largest employer on the island is the government?

    I've witnessed an individual at the Department of Education looking at a form I was presenting, and saying "no, you want the person on the third floor for this one". I asked why she couldn't help me, and she replied "because that form originated on the third floor. I only handle these forms that originate on the second floor."

    I'm all for a flat national sales tax if it replaces income tax. The problem is that politicians would simply add a national tax to income tax, and we'd be more convoluted than before.