A comprehensive analysis of federal, state, and municipal taxes challenges the notion that Puerto Rico residents pay less than those living in the 50 states.
The Institute for Economic Liberty has released Taxes in Puerto Rico: Structure, Tax Burden, and Comparison with the United States, an in-depth study that examines taxes collected on the Island and compares them with the tax systems of the 50 U.S. states. Conducted by Dr. Ángel Carrión-Tavárez and economist Edwin R. Ríos, the study analyzes Puerto Rico’s tax structure, revenue levels, the fiscal burden borne by residents, and other key indicators to better understand the system’s complexity and scope.
The report highlights that individual income tax in Puerto Rico accounts for 21.2% of total revenue and is characterized by high progressivity and heavy reliance on a small group of taxpayers. In 2023, approximately 495,516 individuals—equivalent to 40.1% of filed returns—had no tax liability. Those reporting income up to $40,000 (63.0% of returns) contributed 9.2% of collections, while those earning over $100,000—just 7% of filers—accounted for more than 62.2% of total collections, revealing a significant concentration of the fiscal burden within that segment.
Puerto Rico’s tax system also shows substantial dependence on consumption and corporate taxes, which together account for 69.6% of state and municipal revenues. Corporate taxes show the most pronounced difference compared to the U.S., with the Island’s share being 4.4 times higher. In contrast, property taxes account for only 7.3% of revenues on the Island versus 27.4% in the U.S., reflecting lower property valuations, reduced fiscal pressure on real estate, and a less developed institutional framework for property tax administration.
In addition to state and municipal taxes, Puerto Rico residents pay billions of dollars annually to the U.S. Treasury, disproving the common—and persistent—misconception that Puerto Ricans do not pay federal taxes. In fiscal year 2023, federal taxes paid on the Island totaled $5.39 billion—an amount similar to that collected in Vermont—including $3,674 billion in Social Security contributions and $1.716 billion in other tax categories, such as customs duties, income, estate, telecommunications, and air transportation taxes.
The analysis shows that the belief Puerto Rico residents pay less in taxes than those in the 50 states does not hold up to empirical evidence. “The combined tax burden from federal, state, and municipal taxes in Puerto Rico stands at 18.2% of GDP and 23.9% of GNP. This 23.9% is higher than the tax burden in 12 states, equal to that in 2, and just one percentage point lower than that in 10 others. Thus, 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,” said Carrión-Tavárez.
Ríos added, “In the distribution of taxes collected across the three levels of government—federal, state, and municipal—it is striking that Puerto Rico residents pay disproportionately more to the state government and even the federal government than to the municipal level, the one closest to the people, which accounts for only 9.9% of total revenues. For every $1.00 residents pay in municipal taxes, they pay approximately $6.74 to the state and $2.33 to the federal government. This distribution reflects a highly centralized tax structure.”
The report reveals that Puerto Rico’s tax system is defined by a fragmented legal architecture spread across numerous laws and amendments, a high degree of regulatory segmentation, and limited data availability. For instance, while the Municipal Code authorizes local governments to impose taxes or special charges through municipal ordinances, the corresponding revenues were not found in CRIM data or in other official government sources. Moreover, despite legislation intended to guarantee public access to information of civic interest, a considerable lack of transparency persists.
This study fills a gap in fiscal literature by providing, for the first time, a comprehensive overview of Puerto Rico’s tax system and its comparison with those of the 50 states. “The findings not only challenge misconceptions about the tax burden faced by Island residents but also contribute new data to inform the development of more equitable and effective public policies. Ultimately, the report is an accessible tool, open to ongoing updates and expansion, for understanding and improving Puerto Rico’s fiscal and economic environment,” concluded Carrión-Tavárez.
Contact
Dr. Ángel Carrión-Tavárez | carriona@ilepr.org • 787.478.1000
About the Puerto Rico Institute for Economic Liberty
The Institute for Economic Liberty (ILE) is a 501(c)(3) non-profit, non-partisan, non-governmental organization created with a genuine desire to ensure that everyone on the Island has equal opportunities to reach their full potential and build their own success. We believe that effort and merit should be rewarded, and that prosperity should be driven by people’s creativity, entrepreneurship, and innovation. We envision a Puerto Rico where everyone is empowered to achieve their goals and thrive in a free and open society. You can learn more about ILE at institutodelibertadeconomica.org, and follow us on Facebook and Instagram @ilepuertorico.
