
How Puerto Rico Became a Tax Haven for the Super Rich - evo_9
https://www.gq.com/story/how-puerto-rico-became-tax-haven-for-super-rich
======
dv_dt
For those looking for a different, and maybe deeper perspective on this; this
was an interesting podcast. It is maybe the latest example of the shock
doctrine / disaster capitalism pattern where disasters often lead to profits
for those with access to capital.

[https://www.blubrry.com/thedig/34718421/naomi-klein-and-
merc...](https://www.blubrry.com/thedig/34718421/naomi-klein-and-mercedes-
martnez-the-battle-for-puerto-rico/)

~~~
Nasrudith
The source really undermines itself with the starting sentence - both the
crypto-bros and the dystopia assertion without any text elaboration.

That sounds kind of obvious from a capital standpoint alone. Disasters cause
expensive damages so anyone in a position to repair stands to make money.
Anyone who lacks the reserves and needs loans and financing would be needed. I
don't think it in itself qualifies as unethical even - while uncomfortable to
make money from the misfortune of others the alternatives are worse.

Now other associated unethical practices may be involved like price gouging,
and probably happened with certainty given both the breadth of history and
human greed. It goes without saying that causing the bad situation and then
benefiting is an ethical failure even without any bad intent. Deliberately
causing it being clear evil.

~~~
pathseeker
Price gouging drastically reduces shortages because anyone with supply will be
tempted to quickly move in to capture the high price on the curve. It also
encourages people to actually plan ahead so the entire population isn't trying
to buy a full tank of gas the same day.

You think price gouging is unethical, I think price capping is unethical and
harmful since it encourages hoarding and shortages.

~~~
tfha
After a hurricane, water sometimes goes for $100 per bottle. While that seems
like price gouging...

At $100 a bottle I'm going to be loading up my SUV with as many water bottles
as fit and I'll be driving to the disaster area. I'll take work off, maybe
even risk getting fired for that type of payday.

Is it unethical? Some people would say so, I did make tens of thousands off of
a disaster. But on the other hand, if people were dying because of a water
shortage, I made tens of thousands of dollars saving lives. I probably
wouldn't have done that without the financial carrot.

The free market is a very powerful thing.

~~~
wahern
That's true only if you can readily bring in new supply to compete with
existing suppliers. But if market entry is difficult or impossible--on an
island and unable to quickly arrange transport--then no price is sufficient to
bring new supply to bear on the market.

Price gouging in this context might imply existing suppliers with more than
enough supply to keep water at affordable rates until new supply comes online,
but who choose to charge exorbitant prices simply because they can. Or more
realistically, they charge just below the price at which outside suppliers
could profitably enter the market given the temporarily enormous transaction
costs (e.g. transport) in emergency situations.

Furthermore, when discussing essentials such as water, society cannot tolerate
a system that explicitly puts people into conflict. Maintenance of law & order
requires a minimal degree of equal treatment regardless of circumstance as
part of the social contract. And while we can argue that a $100 bottle of
water might help to ensure that, e.g., only the severely sick receive water
because, facing imminent death, they or someone close them is willing to pay
the price, often the price may far exceed what the impoverished are capable of
affording, no matter how they value it. Again, maintenance of the social
contract--incentivizing the impoverished not to begin violating property
rights--is often a collective action problem and not something free markets
can ensure.

I agree that people use "price gouging" far too liberally and don't appreciate
how price signaling works to moderate supply and demand, but there are
situations where free markets cannot adequately serve a population.

~~~
sokoloff
Even if you can't quickly bring new supply into a market, allowing prices to
rise to reflect the new supply/demand equilibrium prevents (or dramatically
reduces hoarding).

No one goes to a ballgame to stock up on $5 bottles of water...

Force retailers to keep bottles of water at $0.50/bottle and the sensible
thing to do post-disaster if the water supply is uncertain is to buy all of
them. In the worst case, you bought something at a normal price that won't
spoil essentially ever. In a not unexpected case, you have secured a supply of
water for yourself and family and have something that may be barter-able for
other supplies that you might need.

~~~
Faark
Congratulation, you just noticed obvious problems of a rule like "don't change
prices at state of emergencies". Thus, no reasonable/battle-tested actual
regulation will have such a rule. Surprisingly, simple principles like "free
market", "planned economy"/"communism", "free speech", "equal opportunity" etc
cannot solve every problem on their own and we tediously need to balance all
of those tools for the best possible outcomes for society.

Here a compromise might be something like caps on price increases (maybe max
500%) and some mild rules to prevent hoarding. I remember reading something
like that in actual law, but it's been a while and I'm not sure about details
anymore.

It's also interesting many forms of disaster relief are provided by the
governments or non-profits instead by the free market directly. This
development seems like a good indicator that free markets might have
significant drawbacks in such situations.

~~~
sokoloff
And yet, you have people like the AG of Texas threatening to investigate any
business who raised prices by more than 10%. Actually happened; not
theoretical.

See the quote from the Texas AG in the article here:
[https://abcnews.go.com/US/texas-attorney-general-warns-
price...](https://abcnews.go.com/US/texas-attorney-general-warns-price-
gouging-aftermath-harvey/story?id=49503480)

~~~
wahern
Interesting. FWIW, the pertinent law in Texas is recited at
[https://www.texasattorneygeneral.gov/consumer-
protection/dis...](https://www.texasattorneygeneral.gov/consumer-
protection/disaster-and-emergency-scams/how-spot-and-report-price-gouging)

    
    
      [Illegal to sell] fuel, food, medicine or another necessity
      at an exorbitant or excessive price
    

The only thing that might be worse than leaving the standard so open-ended is
actually specifying hard numbers.[1]

I wonder what the caselaw looks like, and what are some actual price
multipliers involved in successful and failed prosecutions.

[1] Sometimes vague standards like that are deliberately designed to incentive
conservative behavior while permitting equitable treatment (give defendant
benefit of a doubt) in actual disputes. Being scared you could easily run
afoul of the law is partly the point. That works better when designed for
enforcement by private plaintiffs where quantifiable harm must plausibly have
occurred. It's prone to abuse when enforced by regulators preemptively as
there's no limiting factor of manifest harm. If everybody was happy to pay
$50, no harm no foul. If somebody's grandmother passed out from dehydration
because she couldn't afford a bottle even though the shelves were full, then
not only do we have harm but we have a concrete context to gauge "excessive".
Preemptive enforcement lacks these contextualizing facts.

------
sergefaguet
Governments should be competing for wealthy taxpayers. And as income sources
become divorced from physical locations, they will be forced to do so more and
more every year.

I run venture backed businesses. Teams are distributed. So I count days across
the world and do not pay taxes anywhere (i am not a US citizen so it is much
easier). In the process my company and I benefit from low cost of capital
raised in silicon valley, low cost of excellent talent hired in russia, my
personal expanded social network in markets in Asia. And it easily pays for
itself just in terms of not needing to pay any taxes anywhere.

It just makes sense to live this way once you have high income, are building
something that is not physically in one location, understand how to be
healthy/social/etc while living in many places.

the current tax system has no future. the fundamental reason is that there is
simply no point for anyone to pay crazy taxes. the United States (or any other
country) just do not deliver enough marginal value from being there for more
than X days per year to pay an extra 20-40% in taxes.

to help your community – donate to things you care about and add value for
other people that way. i want health research to benefit. it makes much more
sense to donate/invest there, than to send the fruits of my work to the NSA to
fund them to spy on me.

i hope more and more people do this.

~~~
jamiek88
So you’re glorifying being a parasite?

~~~
sergefaguet
i pay my way, create jobs for people, fund/promote things i consider valuable
for humanity (e.g. medical tech).

i have never claimed a medical, educational, unemployment etc. benefit in my
life. and i am a citizen of a country that will never give me any such
benefits anyway.

my approach adds more value to society than funding inefficient social
programs, armies of bureaucrats and bloated spy agencies.

yeah, i glorify this.

~~~
ace_of_spades
I guess what is missing from your equation is that the model you are
advocating for is not sustainable for large parts of the population. Just
imagine everyone doing this, do you think the countries could still exist the
way they do? It‘s all and well that you decide to fund some medical tech but
what about all the other areas that need attention? Your giving portfolio
doesn‘t really strike me as well-balanced in that regard. Additionally, I
would question that you are actually giving an amount similar to what you
would be paying in taxes. So your argument that you provide more value to
society doesn‘t strike me as obviously credible. I would urge you to really do
some more comprehensive estimations and analysis before making such a claim –
at least if you are interested in the „truth“ and not just making yourself
feel good about yourself.

On the other hand, I see the possibility for what you are doing to have a
positive impact depending on what you do and what you use your money for
(maybe have a look at 80000hours.org to get some inspiration). But you have to
keep in mind that this is just a marginal possibility for rather small parts
of the population and that this model probabaly wouldn‘t scale at all. So, it
might make sense to keep this in mind when you discuss and think about this
topic.

~~~
st1ck
> I guess what is missing from your equation is that the model you are
> advocating for is not sustainable for large parts of the population.

I don't think anytime we'll have more than 0.1% of population living digital
nomad lifestyle. Even most people who have the opportunity, still prefer
living in one place, with their family.

~~~
ace_of_spades
I think in this thread two things might be conflated. Afaik not all digital
nomads dodge taxes or do it purposefully to evade taxes as presented in the
top post. So, everything I have been saying is coined to the specific
situation outlined in that post. I don‘t want to criticize a digital nomad
lifestyle in general.

But back to your point and assuming that the digital nomads you are talking
about are the ones dodging taxes. It doesn‘t really change anything about the
argument. The problem that not taxing these people seems arbitrary to the
normal person because there is nothing special that those people provide
compared to the average entrepeneur. The average tax dodging nomad doesn‘t
pull his/her own weight => this lifstyle wouldn‘t scale.

------
andreworks
Lots of Bitcoin millionaires moved to Puerto Rico to avoid their capital gains
taxes. Peter Schiff mentions this on his interview with Joe Rogan.

------
cpursley
Politics aside, Puerto Rico’s Act 20 is an interesting opportunity for
American SaaS businesses. Avoid most federal income tax and employ at least 3
locals in the process.

[https://www.quora.com/Do-Puerto-Rico-Acts-20-and-22-apply-
to...](https://www.quora.com/Do-Puerto-Rico-Acts-20-and-22-apply-to-software-
including-development-consulting-and-SaaS-sold-to-clients-located-in-the-USA)

[https://prbusinesslink.com/act-20/](https://prbusinesslink.com/act-20/)

------
pjc50
This is the kind of thing that people mean by "disaster capitalism". PR is
wrecked and desperate for money, so it resorts to tax competition - but only
for wealthy foreigners, not its own residents. This drives up local inequality
while also taking away from the mainland's tax base. And in the end it doesn't
quite manage to solve the problems for the rest of PR.

~~~
chimeracoder
> And in the end it doesn't quite manage to solve the problems for the rest of
> PR.

As long as the Jones Act is still in place, there is no tax policy Puerto Rico
could implement that would solve its economic problems in the long-term.

~~~
throwaway5752
That is like 99th on a list of 100 of PR's problems.
[https://www.cnbc.com/2017/12/18/broken-bonds-wall-streets-
ro...](https://www.cnbc.com/2017/12/18/broken-bonds-wall-streets-role-in-
wiping-out-puerto-ricans-savings.html), poor access to capital/need for
capital after Maria, and an apathetic (if not antagonistic) administration are
absolutely worse right now.

How much would you really estimate is wasted above what would be paid for non-
US flagged ships? How would a race to the bottom in terms of flag-of-
convenience destinations be detrimental to the long term interests of the US
shipping/shipbuilding industries? Would repealing it have any security
impacts? Who would benefit most from it.

I don't expect you to answer those, but they are all complicated questions and
worthy of better discussion than this.

~~~
chimeracoder
> That is like 99th on a list of 100 of PR's problems

Look, I never said that the Jones Act was Puerto Rico's _only_ problem. I said
it's a major problem, and that it alone is significant enough to hamper Puerto
Rico's economy indefinitely.

As a separate note, it's weird to frame it (as you do) as the aftermath of
Maria and the federal government's apathy being _worse_ , when in reality the
two are heavily linked. The Jones Act severely hindered the recovery efforts
from Maria. (Every other hurricane since Katrina has prompted a temporary
waiver from the Jones Act in order to aid relief - including Harvey, which
happened just before Maria).

Yes, keeping the residents of Puerto Rico in the dark for a year and without
reliable access to shelter and clean water is obviously an immediate problem.
I'm saying that _even if the lights were turned back on overnight_ , that
still won't fix the long-term problems either.

~~~
throwaway5752
They waived the Jones Act after Maria, albeit briefly.

I think PR's debt problems are an order of magnitude worse than the excessive
cost of shipping. They need to be a full US state, and they need federal aid
to fix their balance sheet (beyond PROMESA). I think a Jones Act subsidy would
be a reasonable policy to preserve a US shipbuilding industrial base while not
doing so on AK, HI, PR, et al's dime.

------
peter303
Similar story from months ago

[https://www.nytimes.com/2018/02/02/technology/cryptocurrency...](https://www.nytimes.com/2018/02/02/technology/cryptocurrency-
puerto-rico.html)

------
noetic_techy
This was talked about at length on Joe Rogans show by Peter Schiff:

[https://youtu.be/ycPr5-27vSI](https://youtu.be/ycPr5-27vSI)

I think its a net benefit to Puerto Rico to be in this position.

~~~
s73v3r_
Not if Puerto Rico isn't able to tax those super-rich using them as a tax
haven.

~~~
vlehto
Puerto Rico now has rich consumers who pay the salaries of poor Puerto Ricans.
Who then pay income tax.

Small slice from a big pie is better than big slice from non-existent pie.

~~~
s73v3r_
Trickle down economics was long ago shown to be a complete fraud.

~~~
vlehto
You're right. Money doesn't flow too easily from the most rich to the most
poor without government intervention.

But state finance is separate issue from that. And money flowing to the most
poor would not do much to state finance, because the most poor typically are
unemployed and hardly pay any taxes.

------
rdl
Curious who else is in Puerto Rico. I'm moving to either Rincon or San Juan
later this year, decided back in January.

------
contingencies
Read this article then ran in to ...
[https://www.youtube.com/watch?v=CxKArhySbko](https://www.youtube.com/watch?v=CxKArhySbko)
... couldn't stop laughing!

------
gammateam
tl;dr US territories often times have the ability from Congress to create
parallel tax systems. Some have made attractive ones.

protip: Some other US territories have favorable tax laws too, if you want to
dig. Its nice that they aren't being written about by EVERYONE right now.

Nobody's going to spoil it for you because that'll be spoiling it for
themselves too.

ALL US territories have the same catch: they are underdeveloped bad
neighborhoods, and changing the laws doesn't get the comfortable New England
elites to move from their gated communities. New money MIGHT be interested.

~~~
Timmah
I hope Los Zetas see the opportunity here. They could net a few million from
running their playbook on a newly minted crypto-bro thinking he found a
"haven" for his money.

~~~
gammateam
Los Zetas are in the Caribbean territories? I thought they were just in east
Mexico and the Yucatan Peninsula

I mean they are well funded and connected and can go anywhere but... don't?

------
debacle
> Government is a business, and its most important customers are the rich.

I think that's a bit jaded. A better phrasing might be: "Modern absentee
democracies are leveraged by those who can extract the most value from them."

~~~
mdex
They do operate 'kinda' like a business:

They charge rents (property taxes), protection fees (taxes for
military/police), and collect royalties on every good bought or sold on their
turf (sales tax).

The only difference between them and a business is that government gets your
money by force (by threatening imprisonment if you don't pay). A business must
use persuasion & manipulation to get your money.

However, since govt. uses force to collect revenue rather than voluntary
payment for goods/services, they more closely resemble a mafia (protection
racket) than a business.

~~~
beat
Sigh.

The differences are manifold. Start with the purpose - modern government
exists to serve all of society, which it mostly does. The mafia exists to
serve the mafia, although it can be incidentally generous with the public. The
social contract between the public and the government is that revenue the
government takes in through taxes is spent on things that help the public -
schools, roads, emergency services, etc. The public has substantial if
indirect influence on this balance, via elections. Of course, some people
won't be happy with the arrangement, but the majority are generally satisfied.

Additionally, modern government functions in part by a monopoly on the use of
violence, which we agree to as part of the social contract. Individuals who
refuse to participate in the social contract are subject to government
violence, whether they're not paying their taxes, or shooting their neighbors.
As part of the contract, the government is not to abuse that monopoly on
violence at a large enough scale that most of the public feels threatened by
government itself.

Et cetera.

~~~
mdex
The ridiculousness of your social contract idea, is that a contract cannot be
binding if it was made on your behalf, before your birth, without your
consent. Implied consent is lunacy especially when there's lots of people
saying "I do not consent", to which you must reply, "Oh you're just too stupid
to know what's good for you".

Before you get upset and too emotionally invested, I will say I am not against
government or the state. This is like accusing irreligious people of being
against Christianity. I'm not against government, but I cannot in good faith
use government's own language to describe the actual, material function of
government.

Words like "public good", "social contract", these are propaganda words with
more of a religious and spiritual connotation than any truth grounded in
reality. They are lofty ideas invented by men trying to justify the French
revolution. There's definitely value in their ideas and worldview, but
mistaking an ideology or worldview for actual reality, is childish.

Government does not exist to serve society, it exists to preserve the state.

Public services -- healthcare, schools, roads -- all those things are great
and helpful to society but the government does not give them to us to "serve
the public".

Public services exist for one reason, and for the same reason a birdfeeder
exists. A birdfeeder exists to keep the birds all in one place (to study
them). Similarly, public services exist to keep us all in one place, to make
us more easily accessible, so we can be more easily taxed, and more easily
controlled. By giving us public services and a good quality of life, we are
willing to give up even our own lives in the preservation of our state, and to
kill other humans living under a different state, like the Vietcong, who were
doing nothing more than trying to defend their own system against invaders.

The public services government provides, almost always come to us through
granting lucrative and over-priced government contracts to their own powerful
donors and wealthy associates. Notice how after leaving office, politicians
always go work for a big corporation that donated to their campaign and was
recipient of government contracts, grants or tax-breaks.

The alternative to government is government. There's no way around it. Anarchy
creates a void which is filled by another government. I'm fully aware of that.

But making government more fair means acknowledging the ACTUAL functions and
purpose of government. Being naive about those functions doesn't help anyone
but the people who seek to exploit and take advantage of us under the guise of
"serving the public">

People who believe government exists to serve us will inevitably cede
unreasonable, arbitrary, and vaguely defined (unlimited) power to the
government under the false assumption that government intends to use these
powers for our benefit.

You see this all the time where a party expands the role of govt, then
complains when the next party gets elected and uses this same power for
something they don't like. It practically happens every election cycle.

------
hogwild
Gee maybe if they taxed these people themselves we wouldn't have to buy them a
new electrical grid.

~~~
hcknwscommenter
I'm no expert on these matters, but it's the internet so I have an opinion.
These territories face a catch-22: to the extent they raise taxes they become
less attractive to the Super Rich (well outside investment in general). You
might also end up with a race to the bottom scenario, where taxes go to zero,
labor laws go to heck. You actually see all of these issues and more in
practice so it is not just theoretical. It is a difficult quandary to escape
from. You basically need an engine for real organic growth that doesn't rely
on tax gimmicks. Finally, I think Puerto Rico itself also suffers from an
artificial handicap with respect to the Jones Act.

~~~
logfromblammo
What you do is you hide a land mine inside the law. In this case, I think it's
probably the bit about having no significant ties with the mainland. Maybe the
number of days on the island, or something to do with the "one minute" rule.

So you let them move in, thinking they legally owe no taxes, and meanwhile,
you gather the evidence related to your land mine and then wait. You sit on
it. For years. Then you blow up the mine and demand a heaping pile of back
taxes. You can then settle for less than the amount you are demanding, so
nobody goes to court and no precedents are set, but you still get the cash.

The mistake people make is in thinking they can use the law to put on over on
the government, when the government makes and enforces the laws. All those
people in the article were getting the best tax deal an American can even
dream of, and some were still openly discussing ways in which they could cheat
the requirements! It seems like all you might have to do to catch a cheater is
just watch someone for a day or two, or record them during a few minutes of
bragging.

They say you can't cheat an honest man, but you sure can con a cheater.

~~~
roenxi
> "hide a land mine inside the law"

This isn't a great idea and there are things wrong with it at a couple of
levels.

1) We do not want the government to be in an adversarial relationship with
rich people. Most rich people maintain their riches by adding tremendous value
to society. While they may be reticent to pay taxes, they are not enemies.

2) We do not want the government rules-lawyering the law. I'll risk being
opinionated and say that the law is not meant to contain random gotchas, it is
supposed to codify usual and expected behaviour.

The law is meant primarily to be followed, not broken and enforced.

3) As sibling posts mention, people who change jurisdiction to avoid taxes are
going to get an actual legal opinion and have sufficient influence to get the
law changed. It'd never work in practice.

> "They say you can't cheat an honest man, but you sure can con a cheater."

Reminds me of the three felonies a day business [1]. We want less of that
thinking, there are enough problems caused by unclear regulations without
adding more on purpose.

[1]
[https://www.wsj.com/articles/SB10001424052748704471504574438...](https://www.wsj.com/articles/SB10001424052748704471504574438900830760842)

~~~
ionised
> Most rich people maintain their riches by adding tremendous value to
> society.

That's not the impression I'm getting.

------
CryptoPunk
The problem is that once the rich have settled, populist movements will grow
to tax them, and the rich being settled as they are, can't easily escape these
politically coordinated expropriations.

The result is that the rich begin to slowly trickle out, at a rate that is not
fast enough to make the negative repercussions of the involuntary income
redistribution that voters support apparent to them.

~~~
metalliqaz
And what are those negative repercussions?

~~~
CryptoPunk
For the rich individuals: they either get taxed at high rates, resulting in a
loss of enjoyment in their rights, or have to suffer the disruption of
emigrating to a new country.

For the former tax haven: it loses out on capital growth, which means less
economic growth.

~~~
consz
What does a rich person actually lose (ie. materially how is their life
different) when they're taxed at a higher rate?

~~~
sokoloff
I think that Act 22 folks are often the "barely rich" or "incorrectly
categorized as rich", where differential tax policy actually has an effect on
their lifestyle (and therefore more strongly drives behavior).

Take someone with $5MM in investable assets. Using a simplistic 4% rule of
thumb, that can generate $200K of income per year. Tax that at 4%, and you
have $192K to _spend_. Tax it at a blended 25% and you have $150K to _spend_.
At that level of income, $3500/month is very much a noticeable difference,
IMO. ($16K/mo vs $12.5K/mo spendable.)

Now, consider that $150K/yr living in the mainland US goes farther than
$150K/yr on Puerto Rico, and someone with $5MM and eligible for Act22 isn't
going to move to PR without Act22.

Peter Schiff's quote in the article sums it up very well, I think: “Who would
come to a bankrupt island to pay high income taxes?”

~~~
heurist
That's still $150k for doing effectively nothing. That person could choose to
supplement their income with a paid job or a business. I'd love to be in that
position, as would the vast majority of people in the world.

~~~
sokoloff
Of course! No one ever argued that having $5M investable assets was a poor
position to be in. That family absolutely has wide variety of choices they can
make, all of them pretty damn good.

The question is Puerto Rico's motivation/justification/choice to offer Act 22
tax advantages to bring the majority of that $192K of spending onto the island
or not.

