Congressman: Puerto Rico is the canary in the U.S. debt mine

(AP Photo/Ricardo Arduengo, File)

(AP Photo/Ricardo Arduengo, File)

The Washington Post – The Outrage Machine is regular opinion column by voices from the left and right on Washington.

What happens when a government is so far in debt it borrows to pay interest on its debt only to find it needs more layers on its debt pyramid to remain solvent?

If you are the U.S. government, you crank up the printing press. If you are like my home state of Arkansas that found itself in financial disarray and defaulted on its bonds in 1933, you take your lumps, get a poor credit rating, restructure with caveats like a balanced budget requirement, and methodically climb your way out to rebuild your economy.

It was not pretty, and Arkansas issued no new bonds until 1949. But if you are Puerto Rico, you anxiously wait to see if the United States will promulgate your welfare state by looking past your poor management, and feed your debt addiction with a taxpayer bailout. I believe Congress must exercise tough love, and compel Puerto Rico to responsibly get back on its feet.

The peak of Puerto Rico’s mountain of debt is obscured in the clouds of unaudited financial statements, but what we can see looks nearly impossible to scale.

The island territory has a shrinking population of 3.6 million with a gross domestic product slightly over $100 billion, but is carrying $71 billion in debt with another $44 billion in unfunded pensions – equaling a debt of roughly $32,000 per person. Additionally, Puerto Rico’s labor participation rate is less than 40 percent. This means fewer taxpayers and a substantially higher debt load for wage earners.

[Puerto Rico debt bill in limbo]

As bad as it sounds, it is still not even close to the United States debt load of $19 trillion spread among our 324 million citizens whom, if they were equally yoked, would each bear about $59,000 in debt.

In comparison, Arkansas’s $120 billion GDP is greater than Puerto Rico’s. Arkansas has a smaller population of just less than three million. Arkansas’s balanced state general revenue budget is just over $5 billion per year, which begs the questions: “How did Puerto Rico ever get so deep in debt and how on earth do you ever pay down a debt that is bigger than your economy?”

Ironically, these same questions could be asked of the United States government — and the answers would be similar.

Debt happens the same way it always happens, by spending more money than you have. You grow government at an unsustainable rate and you find yourself like Puerto Rico with more than one-fourth of the island’s workforce employed by the government; you implement taxpayer-funded social programs that disincentivize work and grow government dependence; you strangle entrepreneurs with regulations and taxes hurting the average consumer by driving up prices. In short, you create a tax-consuming beast that grows hungrier each day and whose appetite will never be satisfied.

[How Washington helped create Puerto Rico’s staggering debt load]

For example, although Puerto Ricans are exempt from federal income tax, they pay up to 33 percent in income tax to the territory, have an 11.5 percent hybrid value added/use tax, and its government-produced energy costs are six times the mainland’s, making it difficult for working families to simply keep the lights on and purchase necessities like food and clothing.

It took years of bad policy and decisions to get so far in debt and Puerto Rico has demonstrated no impetus for solving the problems on its own. Despite massive public spending and high taxes, Puerto Rico continues to have the highest poverty rate in the United States at a staggering 45 percent. Simply put, Puerto Rico is a case study in spurning the tenants of free enterprise for big government.

How do you ever pay down a debt that is more than your GDP?

Like Arkansas did, slowly and methodically, but first, you have to institute discipline and accountability, stabilize the situation, agree to a plan to repay your creditors, put government on a diet, and free the private sector to create jobs and growth. Including its debt payments, the government cannot spend more than it collects.

Democratic forms of government require checks and balances. Puerto Rico is a territory owned by the United States government. If it were a city or county, then a state would be responsible for oversight. Since Puerto Rico is an American territory, the Article IV constitutional responsibility of oversight falls on Congress. Congress answers to the people.

The road from broke to a balanced budget is difficult, but the end results are a healthier credit rating, realistic spending, a growing economy, and ultimately a better quality of life in Puerto Rico.

At one point during the Great Depression, the Arkansas state treasurer reported a balance of $4.62. Fast-forward to the financial crisis of 2008 and the immediate years following. Many states faced budget shortfalls and deficit spending. That was not the case in Arkansas where the budget remained balanced, and the cuts considered were not to programs but to taxes because of budget surpluses.

Arkansas learned from its errors, suffered the consequences, and put in place a plan to never again create a catastrophic budget crisis.

Bailing Puerto Rico out with U.S. debt would only kick the can down the road, doing nothing to fix the territory’s underlying problems, and making America’s worse.

Puerto Rico is the tremor before our earthquake. It will either be an example of how to fix a debt-ridden economy or a dead canary that we ignore as we continue to dig deeper in our mine of debt.

Congress has a constitutional obligation to deal with the speck in Puerto Rico’s eye. God help us if we do not deal with the plank in our own.

Arkansas Republican Rep. Bruce Westerman sits on the House Natural Resources Committee that is considering legislation to help Puerto Rico.

By Rep. Bruce Westerman April 20 at 6:15 AM

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