Image: The US flag with 51 stars as proposed by the New Progressive Party of Puerto Rico.
Puerto Rico became a part of the US the same year Hawaii was annexed in 1898, but while Hawaii became America's 50th state in 1959, Puerto Rico has remained in limbo as an unincorporated territory for 120 years.
Because of its unique situation Puerto Rico has been able to offer many different tax incentives to investors moving to the island — including those found in Act 60.
One of the first questions new investors ask when they're evaluating the island is what will happen to Puerto Rico if it becomes a state.
Clearly, becoming a state would end the incentives. So why bother going through the time and expense to relocate your company and family?
The short answer is Puerto Rico is likely a long way away from becoming a state, if it ever happens.
The long answer is a little more complex.
Becoming A State Would End the Tax Incentives
Puerto Rico is an independent tax authority, allowing it to act more like a federal agency than a state.
Current tax incentives (such as Act 60-2019) and previous tax incentives (including Act 20-2012 and Act 22-2012) grant local residents who move from the US and comply with other clauses, to be eligible for a tax decree.
Decrees — which in the past have ranged from 10 to 20 years in duration but are now mostly 15 — guarantee investors fixed incentives for their terms no matter what else happens. These incentives include no interest on capital gains or a flat 4% corporate income tax rate.
Once you have a decree, there are only a couple of ways that could change. One is for Puerto Rico to become a state. The other is for the US government to change its stance on Puerto Rican autonomy — which would be tantamount to casting it loose or admitting the commonwealth as a state.
Puerto Rico Has a Long and Complex Relationship with the US
Puerto Ricans are American citizens but they can't vote for the president, have no voting representation in congress (although they have one non-voting delegate), and don't pay federal income tax. This lack of political voice makes them easily overlooked by the mainland.
Without statehood, Puerto Rico remains "the most populous colony in the world," a fact former Governor Rosselló reminded President Trump after Trump recently blocked Rosselló's request to elevate Puerto Rico to statehood.
The island became US property at the end of the Spanish-American war in 1898 but didn't become a territory until 1917, which critics say was only to enable the draft. In the 18-year interim, Puerto Ricans had no rights and didn't even have passports.
The Puerto Rican House of Representatives voted unanimously not to become a US territory in 1917, and on at least one other occasion.
Opinions Remain Divided
The subject of statehood divides local politics more than any other issue and it's on this, rather than Democratic or Republican lines, that the two main parties draw their battle lines.
The Popular Democratic Party (Partido Popular Democrático, PPD, or the "red" party) is pro status quo, committed to staying a commonwealth.
The New Progressive Party (Partido Nuevo Progresista, PNP, or the "blue" party) is pro statehood and currently in power — at least until the November election.
There have been five referenda in Puerto Rican history on Puerto Rico becoming a state, and one on the ballot at the next election.
- 1967. The choice in the first referendum was between remaining a commonwealth, becoming a state or pushing for independence. Approximately 60% voted to keep Puerto Rico a commonwealth. Only 0.6% voted for independence. 68% of voters turned out. (For comparison, 55% of eligible US voters voted in the US presidential election in 2016. Puerto Ricans do not vote in presidential elections.)
- 1993. The voting was tighter when asked the same question 26 years later. This time 73.5% of eligible voters turned out at the polls. The result was 48.9%-46.6% in favor of remaining a commonwealth, with the remaining 4.5% voting for independence.
- 1998. There were five options on the ballot at the end of the century — statehood, independence, territorial commonwealth, free association, or none. Turnout was 71% and "none" won 50.5% — actually a vote for no change due to the tricky way the five choices were defined. 46.6% voted for statehood.
- 2012. Two questions were asked: Should Puerto Rico continue with current status — 54% of people voted no. The second question was should Puerto Rico become a state, an independent country or sovereign nation with close ties to the US. 61% chose state.
- 2017. This time statehood won by a landslide 97%, but only because the opposing party chose not to vote because they did not like how the question was put. Only 23% of eligible voters turned out.
- 2020. There is another referendum scheduled for this year's general election, this time with just one question on the ballot: "Should Puerto Rico be immediately admitted into the Union as a state?"
The Path to Statehood is Unclear
The 37 states that have been added to the original 13 all had clear paths to statehood from the time they were initially annexed. Puerto Rico does not have the same path.
In 1901, a series of legal opinions known as the Insular Cases argued that Puerto Rico and other territories ceded by the Spanish were full of “alien races” who couldn’t understand “Anglo-Saxon principles.” Therefore, the Constitution did not apply to them, and Puerto Rico became an “unincorporated territory” with no path forward to statehood.
Since the island was deemed an unincorporated territory by the US Supreme Court, it will need to be incorporated before it can start on on a path to statehood.
That incorporation would be slow, perhaps a decade or two, and the requirements would not be insignificant — likely including overwhelming Puerto Rico support, proof that the island is capable of US democracy, and solvency. The last of which is clearly not the case.
The Greatest Hurdle is Political
It's unlikely that a Republican government will allow Puerto Rico to join. Puerto Ricans vote overwhelmingly democratic in presidential primaries (which they are allowed to participate in, just not the general election). So adding Puerto Rico would add two democratic seats to the Senate. The commonwealth would also gain five representatives, and as the number of representatives in the House is capped, those five would come from a reduction in delegates from each of Washington State, Minnesota, California, Texas, and Florida.
Indeed, the latest 2017 referendum was roundly rejected by Trump. The US Congress is not bound to listen to the results of any such action — which will not stop the island holding another referendum in November.
The last states to join the Union, Hawaii and Alaska, came as a pair. One red, one blue.
Congress has shown little interest. According to research completed by the Atlantic, "Washington lawmakers have introduced more than 130 bills to resolve Puerto Rico’s political status, and none have gone anywhere. ...That’s partly because there is no defined process for statehood. The Constitution doesn’t give direction on how to admit a new state."
“To make a long story short, the prospects [of Puerto Rico joining the Union] are between zero and negative-10 percent,” — Carlos Iván Gorrín Peralta, InterAmerican University of Puerto Rico.
Numerous US presidents and presidential nominees have claimed support for Puerto Rico statehood, including Gerald Ford, Ronald Reagan, and George H. W. Bush. Still, no progress has been made.
Summary: It's Almost Certainly, Probably, Not Going to Happen and Definitely Not Soon
If Puerto Rico decided this year to become a state, which is 50-50, it would still require Congress to listen and approve it. That will only happen if the Democrats are in charge, but even then it's a long-shot. If that happens, Puerto Rico needs to be incorporated first, but will be required to meet thresholds of solvency, capability, and desire that don't even exist as benchmarks so we don't know how reachable they are. Then, the commonwealth would be on a decade-long track to transition.
The final verdict is that there is a very small chance of Puerto Rico becoming a state anytime soon, and even then, you will have about a decade's notice.