Former President Donald Trump’s platform did not include Puerto Rico-focused issues in his administration’s platform. However, his economic proposals for the United States, if he wins the November elections, would have important impacts for the island.
Let’s start with the proposed elimination of taxes on Social Security pensions. Nearly 40 percent of beneficiaries in the United States pay income taxes on Social Security pensions. The revenues generated by these taxes are returned to the Social Security pension fund.
Since 60 percent of the beneficiaries of the Social Security pension plan do not pay taxes on their Social Security pensions because their income is low, the proposed measure will favor the wealthiest groups in the United States. In the case of Puerto Rico residents, who do not pay federal taxes, the benefit of the proposal would be zero.
At the same time, this proposal will hurt all Social Security pensioners. If current benefits and taxes are maintained, the Social Security pension fund will become insolvent in 2033. Medicare will do the same in 2036. Before those dates, Congress will likely pass a combination of lower benefits and higher taxes.
Since taxes on Social Security income go into the Social Security trust fund, eliminating taxation as Donald Trump proposes moves up the insolvency date for the pension system to 2032 and for Medicare to 2030.
Another Trump proposal is to impose a tariff on all imports of between 10 and 20 percent, plus 60 percent on products imported from China. Suppose a European product is imported into the United States and shipped back to Puerto Rico. The car would pay between 10 and 20 percent more taxes, which would go to the federal government. Undoubtedly, the consumer in Puerto Rico would be the loser.
By imposing a 60 percent tariff on Chinese products, some products would begin to be imported from Mexico instead of China. The Puerto Rican consumer would absorb the new tariff of between 10 and 20 percent, plus the difference between the cost of the product from China and the cost of the product from Mexico, for example.
Other Trump policies relate to reducing corporate income taxes. During his presidency, the corporate tax rate dropped from 35 percent to 21 percent. Trump proposes to lower it further. The problem for Puerto Rico is that we do not pay federal taxes, so we will not benefit from the proposed lower tax rates.
On the other hand, as the federal government’s fiscal deficit increases because of the tax cut, Puerto Rico will be impacted by increases in inflation. In addition, there will be an impact from the federal government’s more limited ability to fund social programs that benefit the island.
Finally, economic policy uncertainty affects market confidence. Businesses and investors prefer an investment climate where the rules of the game are clear. Trump has proven to be erratic in the past. At nearly eighty years old, he is unlikely to change.
