So how did Puerto Rico lose its status as one of the richest spots in the Caribbean? Economists cite the decline of its once-powerful manufacturing sector.
But the island’s biggest boost arguably came in 1976, when Congress effectively exempted Puerto Rico-based companies from paying federal income taxes. The goal was to boost the territory’s economy, and it worked. The tax breaks, coupled with the island’s proximity to the United States, made it a prime destination for multinationals.
In the 1990s, critics attacked the tax breaks as too expensive. After an intense lobbying battle in 1996, Congress repealed the tax abatement, which was phased out over a decade.
“The effect was immediate and crushing,” says Vélez. “Our economic model was developed around these tax breaks, and after they were allowed to lapse, investment just stopped, and that model just disappeared.”