Puerto Rico:

Potential Federal Income Tax Revenues Resulting From Statehood

GGD-98-166R: Published: Jul 8, 1998. Publicly Released: Jul 8, 1998.

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Pursuant to a congressional request, GAO estimated the amount of federal income taxes that individuals and corporations in Puerto Rico would pay if the: (1) termination of the Puerto Rican economic activity credit and the change in political status occurred today; and (2) amount and distribution of individual and corporate incomes in Puerto Rico remain similar to what they have been in recent years.

GAO noted that: (1) given the uncertainty over income growth in Puerto Rico after both the phaseout of the economic activity credit and the potential change to statehood, it is difficult to project the impact statehood would have on future combined federal individual and corporate income tax revenues; (2) it roughly estimated the impact that statehood would have on individual income tax revenue if personal incomes remain similar to what they have been in recent years; (3) there is more uncertainty over the impact of statehood on corporate tax revenue because, even if corporate incomes remain close to their current levels, the revenue impact would be sensitive to decisions that corporations made regarding their organizational form and repatriation of profits; and (4) while GAO is able to roughly illustrate the extent to which the corporate tax revenue impact could vary, depending on the decisions corporations make, GAO has no basis for predicting what the actual corporate decisions would be.

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