Why Puerto Rico's Economy't Work

TL;DR

Puerto Rico's economy collapsed after Congress eliminated its pharmaceutical tax incentives, leaving a debt-addicted government and a population fleeing to the mainland.

Key Points

• 1.Section 936 built Puerto Rico's economy on a single, fragile tax loophole. The provision zeroed federal income tax on profits earned in Puerto Rico, attracting Big Pharma — by 1990, 17 of the top 21 most popular U.S. drugs were made there, and manufacturing hit 40% of GDP.
• 2.Congress killed Section 936 without any replacement plan. Phased out fully by 2006, the repeal triggered immediate economic freefall; combined with the 2008 Great Recession, 230,000 of Puerto Rico's 1.2 million jobs permanently disappeared by 2013.
• 3.A constitutional mistranslation created a debt catastrophe. The Spanish version of Puerto Rico's constitution translated 'revenues' as 'resources,' allowing the government to count borrowed money as income — enabling unlimited debt with no repayment plan.
• 4.Puerto Rico borrowed $73 billion ($120B including unfunded pensions) largely to pay old debts. A U.S. government report found 16 of 20 bonds issued between 2000 and 2017 were used solely to refinance existing loans; investors kept buying because bonds were triple-tax exempt and Puerto Rico was seen as too big to fail.
• 5.Detroit's 2013 bankruptcy shattered the 'too big to fail' assumption. After Obama refused a Detroit bailout, Puerto Rican bonds were downgraded to junk status, interest rates surged past 8%, and by 2015 the governor declared a 'death spiral' — the debt dwarfed Detroit's $18B at $73B.
• 6.Mass emigration creates a self-reinforcing death spiral. As U.S. citizens, Puerto Ricans can leave freely — 50–100k depart annually, mostly young and educated — leaving a median age of 43, fewer than half of adults in the labor force, and an ever-shrinking tax base that drives even more residents away.