Study: Puerto Rico tax load rivals that of US states
Puerto Rico residents face a tax burden that rivals, and in some cases surpasses, that of several U.S. states, according to a new study by the Institute for Economic Liberty (ILE).
The report, “Taxes in Puerto Rico: Structure, Tax Burden, and Comparison with the United States,” by Ángel Carrión-Tavárez, ILE’s director of research and public policy, and economist Edwin Ríos, analyzes income, consumption, corporate and property taxes, along with federal contributions. It compares Puerto Rico’s fiscal load to that of the 50 states.
The study found that Puerto Rico’s income tax structure leans heavily on a small segment of the population. Although individual income taxes provide 21.2% of government revenue, nearly 40% of taxpayers owed nothing in 2023.
About 495,516 filers — 40.1% of all returns — paid no income tax. Those earning up to $40,000 represented nearly two-thirds of taxpayers but contributed only 9.2% of collections. By contrast, 7% of filers, with incomes above $100,000, were responsible for 62.2% of total income tax revenue.
“The combined tax burden from federal, state, and municipal taxes in Puerto Rico stands at 18.2% of GDP and 23.9% of gross national product,” Carrión-Tavárez said. “This 23.9% is higher than the tax burden in 12 states, equal to that in two, and just one percentage point lower than that in 10 others. Even with only partial federal taxation, the fiscal pressure on Puerto Rico residents is comparable to or exceeds that of 24 states where residents pay all federal taxes.”
Beyond income tax, the government leans heavily on consumption and corporate levies, which together account for 69.6% of state and municipal revenue. Puerto Rico’s reliance on corporate taxes is 4.4 times the U.S. average. Property taxes make up just 7.3% of revenue, compared with 27.4% stateside, due to lower property valuations and weaker enforcement.
The study also challenges the notion that Puerto Ricans do not pay federal taxes. In fiscal 2023, residents contributed $5.39 billion to the U.S. Treasury, comparable to the amount collected in Vermont. That included more than $3.67 billion in Social Security contributions and nearly $1.72 billion from customs duties, telecommunications, air transportation and estate taxes.
“These numbers clearly show that Puerto Rico is not exempt from federal taxation, even if residents do not pay federal income tax on locally earned wages,” Carrión-Tavárez said.
The report also highlights the highly centralized nature of Puerto Rico’s tax system. Municipal governments collect just 9.9% of all taxes. “For every dollar residents pay in municipal taxes, they pay about $6.74 to the state and $2.33 to the federal government,” Ríos said.
The authors describe the system as fragmented and opaque, with overlapping laws and weak compliance. For example, while the Municipal Code authorizes towns to levy taxes, not all revenues are reflected in the Municipal Revenue Collection Center (CRIM, for its initials in Spanish). Transparency laws are often not enforced, they said.
“The system’s complexity and opacity not only make it harder for citizens to understand their tax obligations, but also for policymakers to design equitable reforms,” the authors wrote.
Carrión-Tavárez said the findings aim to challenge misconceptions about the island’s fiscal reality. The study, he said, provides “new data to inform the development of more equitable and effective policies.” It is a reference designed for “updates and expansion, for understanding and improving Puerto Rico’s fiscal and economic environment.”
