Tag Archives: Puerto Rico

Tax Freedom in Puerto Rico, by John Stossel

If you move to Puerto Rico you will pay no federal income tax and only Puerto Rico’s 4 percent tax. From John Stossel at townhall.com:

Tax Freedom in Puerto Rico

Source: AP Photo/Carlos Giusti

Want to pay no federal income tax?

Move to Puerto Rico.

Really. If you move to the island, you can legally pay none. There’s also no capital gains tax.

You just have to give 4% of your income to Puerto Rico.

The tax break was started by a Puerto Rican politician who’d watched years of high taxes fail to improve life on the island. He decided to try something different.

Obviously, it’s a popular idea, when people learn about it.

Tens of thousands have applied for the exemption, and applications tripled last year.

YouTube star Logan Paul moved his show from California to Puerto Rico to take advantage of the tax deal.

Investor Peter Schiff says, “I did it for the obvious benefit of being able to keep most of what I own … It’s too bad that Puerto Rico didn’t do this decades ago. They wouldn’t be in the economic trouble they are today.”

Continue reading→

The Case For Wiping Out Puerto Rico’s Debt, by Tom Sanzillo

Except for the those Puerto Rican creditors who had insurance on their loans, at most creditors will receive is 10 to 20 cents on the dollar. Tom Sanzillo argues that for Puerto Rico to recover and rebuild from recent hurricanes, its debt must be wiped out. From Sanzillo at valuewalk.com:

President Trump, who knows a thing or two about bankruptcy, says Puerto Rico’s public debt should be wiped out. We agree.

The commonwealth owes bondholders somewhere on the order of $70 billion, with most of that debt tied to general-obligation bonds, revenue bonds and bonds issued by the Puerto Rico Electric Power Authority (PREPA).

Ahead of the wide devastation wrought by Hurricanes Irma and Maria, we were of the view that the commonwealth could manage perhaps 20 to 30 percent of its general-obligation and revenue-bond debt and that PREPA could pay off perhaps 30 percent of its debt.

Now, as the island and its economy reel from the carnage of the hurricanes, we see the only viable way forward as a zeroing-out of the bonds in question and an immediate cessation of interest payments. Puerto Rico’s badly-crippled economy must rebuild, and the only way for that to happen is for legacy governmental debt to be handled in a way that won’t impair the restoration of markets and physical development.

This is a necessary remedy that will affect three sets of bondholders.

First, the large investment houses like Franklin Templeton, Oppenheimer, Citi and JP Morgan, which own large chunks of bonds. These investment houses, however, have vast and diverse holdings in the trillions of dollars that are hedged against just about every eventuality.

Second, a host of hedge funds that bought into the Puerto Rico bond market at a discount. These hedge funds have made extraordinary gains on this debt by way of interest-rate payments on the face value of the discounted bonds.

Third, small investors who live in Puerto Rico and elsewhere who stand to suffer the most. These investors have no hedges against these losses, and (unlike hedge funds) have not reaped extraordinary gains on Puerto Rican debt.

The way out of this is not pretty but there is ample precedent.

To continue reading: The Case For Wiping Out Puerto Rico’s Debt

How Puerto Rico Can Rebuild And Become The Hong Kong Of The West, by Benjamin R. Dierker

The author’s proposal for an Economic Freedom Zone is never going to happen, but if it did, it would be a refreshing intellectual sea change…and it would work. From Benjamin R. Dierker at fee.org:

After a particularly devastating hurricane season, Puerto Rico has an uncertain future. Already mismanaged and saddled with debt, the island territory now faces the virtually insurmountable task of rebuilding its infrastructure and economy. But amidst the rubble and heartache lies one of the greatest opportunities in the modern era not just to rebuild, but to reimagine the possibilities for economic and political freedom.

Two simple but powerful steps taken by Congress could hasten recovery and redefine the trajectory of the island’s future. First, the United States should assume all of Puerto Rico’s outstanding bond debt. Second, in exchange for debt assumption, the federal government should establish the island as an Economic Freedom Zone. Within a year, these reforms would help rebuild Puerto Rico; within a decade, they could rebuild our conception of the free market in the Western Hemisphere.

It is important to note that hurricane destruction has not created economic gain by boosting demand for construction. This broken-window view fundamentally misunderstands the nature of this potential. Nor should this plan come at the expense of traditional disaster relief. Before infrastructure can be rebuilt, urgent human needs must be met with outside aid.

But rather than pursue traditional recovery with an eye toward returning to business as usual, this proposal seeks to fundamentally remake Puerto Rico into a modern and dynamic economy built to match and surpass any on earth.

To continue reading: How Puerto Rico Can Rebuild And Become The Hong Kong Of The West


Catalonia and other Disasters, by Raúl Ilargi Meijer

Catalonia is yet another demonstration that underlying contemporary governance, it all comes down to the violence and nothing else, certainly not moral legitimacy. From Raúl Ilargi Meijer at theautomaticearth.com:


Catalunya October 1 2017I’ve seen a lot of videos and photos of the Catalonia attempt to hold a referendum today (Tyler has a “nice” series of them), and what struck me most of all, apart from the senseless violence police forces were seen to engage in, is the lack of violence on the side of protesters.

So when I see the Interior Ministry claim that 11 policemen were injured, That is hard to take serious. Not that the Catalans had no reason to resist or even fight back. That hundreds of protesters, including scores of grandma’s, are injured is obvious from watching the videos. Since rubber bullets were used in large numbers, fatal injuries are quite possible.

Policemen hitting peaceful older ladies till they bleed is shocking, and we are all shocked. Many of us will be surprised too, but we shouldn’t be. Spain is still the land of Franco, and his followers continue to exert great influence in politics, police and military. And it’s not just them: one video from Madrid showed people singing a fascist theme from the France era.

That’s the shape the EU knowingly accepted Spain as a member in, and that shape has hardly changed since. The total silence from Brussels, and from all its capitals, speaks volumes. Belgian PM Michel said earlier today that he doesn’t want to talk about other countries’ politics, and that’s more than I’ve seen anyone else say. It’s of course a piece of gross cowardly nonsense, both Michel’s statement and the silence from all others.

Because this very much concerns the EU. As Julian Assange tweeted “Dear @JunckerEU. Is this “respect for human dignity, freedom and democracy”? Activate article 7 and suspend Spain from the European Union for its clear violation of Article 2.” (Article 7 of the European Union Treaty: “Suspension of any Member State that uses military force on its own population.”) Sure, technically the Guardia Civil is not military, but are Juncker, Michel and above all Merkel really going to try and hide behind that?

To continue reading: Catalonia and other Disasters

In the Murk, by James Howard Kunstler

With Hurricane Maria, Puerto Rico has moved beyond the problems imposed by bankruptcy to meeting the basic requirements of survival. From James Howard Kunstler at kunstler.com:

Welcome to America’s first experiment in the World Made By Hand lifestyle. Where else is it going? Watch closely.

Ricardo Ramos, the director of the beleaguered, government-owned Puerto Rico Electric Power Authority, told CNN Thursday that the island’s power infrastructure had been basically “destroyed” and will take months to come back

“Basically destroyed.” That’s about as basic as it gets civilization-wise.

Residents, Mr. Ramos said, would need to change the way they cook and cool off. For entertainment, old-school would be the best approach, he said. “It’s a good time for dads to buy a ball and a glove and change the way you entertain your children.”

Meaning, I guess, no more playing Resident Evil 7: Biohazard on-screen because you’ll be living it — though one wonders where will the money come from to buy the ball and glove? Few Puerto Ricans will be going to work with the power off. And the island’s public finances were in disarray sufficient to drive it into federal court last May to set in motion a legal receivership that amounted to bankruptcy in all but name. The commonwealth, a US territory, was in default for $74 billion in bonded debt, plus another $49 billion in unfunded pension obligations.

So, Puerto Rico already faced a crisis pre-Hurricane Maria, with its dodgy electric grid and crumbling infrastructure: roads, bridges, water and sewage systems. Bankruptcy put it in a poor position to issue new bonds for public works which are generally paid for with public borrowing. Who, exactly, would buy the new bonds? I hear readers whispering, “the Federal Reserve.” Which is a pretty good clue to understanding the circle-jerk that American finance has become.

Some sort of bailout is unavoidable, though President Trump tweeted “No Bailout for Puerto Rico” after the May bankruptcy proceeding. Things have changed and the shelf-life of Trumpian tweets is famously brief. But the crisis may actually strain the ability of the federal government to pretend it can cover the cost of every calamity that strikes the nation — at least not without casting doubt on the soundness of the dollar. And not a few bonafide states are also whirling around the bankruptcy drain: Illinois, Connecticut, New Jersey, Kentucky.

To continue reading: In the Murk

Where there’s [almost] “blood in the streets” in America today… by Simon Black

If you know what you’re doing, Puerto Rico may represent a big opportunity. From Simon Black at sovereignman.com:

In the spring of 1871 after a miserable defeat in the Franco-Prussian War, Paris plunged into a major crisis as local citizens revolted against the government.

Financial markets went berserk as a result, and the prices of French government bonds plummeted.

There’s an old story that an heir to a large fortune came calling to the offices of the Rothschild banking family looking for investment advice.

According to accounts republished several years later by the Wall Street Journal and Chicago’s Daily Tribune, Rothschild advised the man to buy French government bonds.

“But the streets of Paris are running with blood,” exclaimed the investor.

Rothschild is reported to have replied, “My young friend, that is the very reason that today you can buy securities for 50 percent of their face value.”

This story gave rise to a common saying in finance: ‘buy when there’s blood in the streets’.

This is easy to understand intellectually… harder to do in practice.

When there’s blood in the streets, i.e. markets are collapsing, our human emotions kick in. We tend to panic.

Rather than think that the worst is probably over, we often think that the worst is still to come… and that good times will never return.

Buying at a time when everyone else is selling takes courage. People tell you that you’re crazy.

Looking out my window of the lovely Vanderbilt Hotel here in San Juan, Puerto Rico, I can’t see any blood. Not yet.

But there is zero doubt that this island is in dire financial straits.

Puerto Rico is flat out 100% bankrupt. There is no other way to state the case.

The island’s government is in default. The development bank is in default. Even the local utility company has filed for bankruptcy.

The fallout has been so severe that it borders on ridiculous.

To continue reading: Where there’s [almost] “blood in the streets” in America today…


Are Illinois & Puerto Rico Our Future? by Patrick J. Buchanan

The answer is yes (see “A Jubilee is Coming“). From Patrick J. Buchanan at buchanan.org:

If Gov. Bruce Rauner and his legislature in Springfield do not put a budget together by Friday, the Land of Lincoln will be the first state in the Union to see its debt plunge into junk-bond status.

Illinois has $14.5 billion in overdue bills, $130 billion in unfunded pension obligations, and no budget. “We can’t manage our money,” says Rauner. “We’re like a banana republic.”

Speaking of banana republics, Puerto Rico, which owes $74 billion to creditors who hold its tax-exempt bonds, and $40 billion in unfunded pension liabilities, has already entered bankruptcy proceedings.

The island’s imaginative 38-year-old governor, Ricardo Rossello, however, has a solution. Call Uncle Sam. On June 11, Rossello held a plebiscite, with a 23 percent turnout, that voted 97 percent to make Puerto Rico our 51st state.

“(T)he federal government will no longer be able to ignore the voice of the majority of the American citizens in Puerto Rico,” said Rossello. Washington cannot “demand democracy in other parts of the world, and not respond to the legitimate right to self-determination that was exercised today in the American territory of Puerto Rico.”

Had the governor been talking about the island’s right to become free and independent, he would have had a point. But statehood inside the USA is something Uncle Sam decides.

Rossello calls to mind Count Mountjoy of Grand Fenwick, who, in “The Mouse that Roared,” plotted to rescue his bankrupt duchy by declaring war on the U.S., sailing to America to surrender, and then demanding the foreign aid America bestows on defeated enemies.

Yet Puerto Rico’s defaults on its debts may soon be our problem. Many bond funds in which Americans have invested their savings and retirement money are full of Puerto Rican bonds.

According to The New York Times, the U.S. Virgin Islands, the Northern Marianas and Guam are in the same boat. With 100,000 people, the Virgin Islands owe $6.5 billion to pensioners and creditors.

Then there is Connecticut, a state that has long ranked in the top tier in per capita income and wealth.

Connecticut, too, appears wobbly. Rising pension benefits, the cost of servicing the state debt and falling tax revenue due to fleeing residents and companies like Aetna and General Electric, have dropped Connecticut to near the national bottom in growth prospects.

To continue reading: Are Illinois & Puerto Rico Our Future?


As The Puerto Rico Lawsuits Begin “A Bankruptcy Is A When, Not An If” by Tyler Durden

Puerto Rico’s bankruptcy has been a when, not an if, for a long time. The denouement of these things always seems to take longer than a reasonable observer would expect. From Tyler Durden at zerohedge.com:

Last July, Puerto Rico defaulted on hundreds of millions in debt, however under the PROMESA federal rescue law put together in the last minute, creditor litigation was put on hold – a kind of deferred debtor protection without the actual bankruptcy. The law was meant to encourage Puerto Rico and its federal financial oversight board to negotiate debt-cutting agreements with creditors. No deals were reached and on midnight of May 1 into Tuesday, the litigation freeze expired, opening the doors for creditors to take Puerto Rico to court, in hopes of blocking the next step in the Puerto Rico restructuring, namely Governor Ricardo Rossello’s plan to impose drastic repayment cuts. As a reminder, Puerto Rico defaulted on $1.3 billion of principal owed since the previous governor declared the $70 billion public debt load unpayable in June 2015.

And as expected, on Tuesday Puerto Rico and its federal financial oversight board were flooded with the first lawsuits from stakeholders, with more expected in the coming days, which could ultimately push the insolvent U.S. territory into bankruptcy.  The lawsuits, according to Reuters, include complaints from holders of Puerto Rican sales-tax-backed debt, from general obligation bondholders and from bond insurer Ambac Assurance Corp.

  • The first group, those holding sales-tax backed debt known as the COFINA bondholders, allege that the island’s debt-cutting plans violate the U.S. Constitution.
  • The second group, those holding general obligation debt which is guaranteed by the island’s constitution, are demanding payment on $242.5 million of debt defaulted upon since July, including damages and interest of more than $102 million.
  • Finally, there is Ambac which insures $2.2 billion of Puerto Rican bonds, and which filed four lawsuits, including two against the island’s government and another against U.S. Treasury Secretary Steven Mnuchin, seeking a lien on Puerto Rican rum taxes collected by the U.S. Treasury Department.

“Puerto Rico is no longer shielded from creditors rushing to the courthouse to lay claim to its assets – that includes the beaches, pieces of art, historical furniture and any assets whether they are nailed down or not. The people of Puerto Rico have had enough. The governor and the board have a moral imperative to act immediately” said Rep. Nydia Velazquez, a New York Democrat, who is calling on a federal control board overseeing Puerto Rico’s finances to seek a court-supervised debt restructuring similar to Chapter 9.

To continue reading: As The Puerto Rico Lawsuits Begin “A Bankruptcy Is A When, Not An If”


Puerto Rico Nearing Historic Default, by Michelle Kaske

SLL holds a simple belief: if you spend more than you take in for long enough, you will go broke. Puerto Rico confirms this simple truism. From Michell Kaske at Bloomberg Business via davidstockmanscontracorner.com:

Even if Puerto Rico manages to strike a last-minute deal to defer bond payments due in three days, the commonwealth’s financial collapse is about to enter an unprecedented phase.

Anything short of making the $422 million payment that Puerto Rico says it can’t afford would be considered a technical default. More importantly, it opens the door to larger and more consequential defaults on debt protected by the island’s constitution, and raises the risk of putting efforts to resolve the biggest crisis ever in the $3.7 trillion municipal market into turmoil.

Nearly 10 months after Governor Alejandro Garcia Padilla said the commonwealth was unable to repay all its obligations, Puerto Rico has failed to reach an accord on a broad restructuring deal presented to bondholders. During that time the administration has delayed payments to suppliers, postponed tax refunds, grabbed revenue originally used to repay other bonds and missed payments on smaller agency debt. With its options drying up, no bondholder agreement in sight and Congressional action delayed, defaulting may be the next step for Puerto Rico.

“It’s a game changer because it starts an actual legal process with teeth on both sides that can finally advance settlement negotiations,” said Matt Fabian, a partner at Municipal Market Analytics, a research firm based in Concord, Massachusetts. “Pre-default negotiations are really not going anywhere. Post default might have a better chance.”

Puerto Rico and its agencies racked up $70 billion in debt after years of borrowing to fill budget deficits and pay bills as its economy shrunk and residents left the island for work on the U.S. mainland.

The island’s Government Development Bank, which lent to the commonwealth and its municipalities, is in talks with creditors to avoid defaulting on the $422 million that’s due May 1. The commonwealth may use a new debt moratorium law if it cannot defer that GDB payment, Jesus Manuel Ortiz, a spokesman for Garcia Padilla, said Wednesday during a press conference in San Juan.

While a GDB default would be the largest yet by Puerto Rico, a missed payment on its general obligations would signal to investors that the commonwealth is finally executing on its warnings that it cannot pay its debts. Puerto Rico and its agencies owe $2 billion on July 1, including a $805 million payment on its general-obligation bonds, which are guaranteed under the island’s constitution to be paid before anything else.

To continue reading: Puerto Rico Nearing Historic Default

A Beleaguered Wal-Mart Sues A Broke Puerto Rico For “Astonishing” Tax Hike, by Tyler Durden

“Astonishing” tax hikes will be the order of the day as governments go broke. They’ll kill a lot of economic activity and won’t generate near the revenues politicians and bureaucrats will be counting on. They will express surprise and raise counterproductive taxes some more. From Tyler Durden at zerohedge.com:

It’s always amusing when unforeseen circumstances conspire to bring two previously disparate stories together in one hilarious boondoggle.

As regular readers are no doubt aware, Puerto Rico is broke. “Let us be clear: We have no cash left,” governor Alejandro Garcia Padilla told Congress last week, after the commonwealth used an absurd revenue clawback end-around to avoid defaulting on some $345 million in debt that came due on Tuesday.

The island owes another $300 million on January 1st and what might this week’s payment so important was that of the $354 million coming due, around $273 million was GO debt, and defaulting on that would mean a cascade of ugly litigation.

Of course the use of the clawback – which effectively allows the island to divert revenue earmarked for other bonds to GO debt repayments – is a bit like Greece tapping its IMF reserves to pay the IMF. That is, there’s a palpable sense of desperation here and the situation is going to get immeasurably worse without some manner of federal intervention.

Ok, so that’s Puerto Rico.

Regular readers are also no doubt aware that Wal-Mart has gotten itself into trouble this year after bowing to calls for increased wages for its lowest-paid employees. Those wage hikes (which are set to cost the retailer around $1.5 billion over two years) pinched margins, prompting the company to tighten the screws on suppliers with a series of measures that culminated in Wal-Mart demanding that its vendors pass on any savings they might have derived from the yuan deval.

The company also learned that when you hike wages for some employees but not others, the wage hierarchy gets thrown out of whack prompting workers higher up the ladder to either quit, or demand more money to restore the compensation pecking order.

Unable to cope and unable to squeeze anything else out of the supply chain without triggering a veritable vendor mutiny, Wal-Mart was forced to cut hours and then, to cut jobs at the Bentonville office.

It all fell apart in October when the retailer slashed its guidance, triggering a harrowing decline in the stock.

Well don’t look now, but a beleaguered Wal-Mart is suing a beleaguered Puerto Rico after the latter’s attempt to lift government revenue by raising taxes pushed the company’s tax burden in the commonwealth to nearly 92% of net income.

To continue reading: A Beleagured Wal-Mart Sues A Broke Puerto Rico For “Astonishing” Tax Hike