Not exactly sure why, but I was feeling quite exuberant when an old friend sent me an article about the super rich moving to Puerto Rico for tax purposes. New inspiration, I reasoned. An infusion of money that could trickle down and jump-start the stagnant economy. Projects funded that might boost services and improve life on the island for everyone. Ten wealthy Americans have already taken advantage of the year-old law here that lets new residents pay no local or U.S. federal taxes on capital gains, and some 40 others are currently considering it. I had heard about the recently-opened Ritz Carlton in Dorado Beach, and its outrageous $2,500 per-night room rate, and about the high-end mall under construction near the University of Puerto Rico, and was pretty certain things were getting better in San Juan, at least economically. Then, after some pondering, it occurred to me what billionaire hedge fund manager John Paulson and his ilk really mean when they speak about relocating to a financial paradise. It is not the sultry beaches or the clear blue-green waters that are inviting them. Not the old city fortresses either, where my jogger friends here get some mighty runner's high. That exorbitant room rate on an island of nearly half the population living below the U.S. poverty line, it started to make some sense.
American plutocrats like Paulson, worth an estimated $11.2 billion, according to the Forbesrich list, are typically taxed on their worldwide income, even if they reside outside the country. Under the Puerto Rican law, new immigrants who have not lived on the U.S. territory in the previous 15 years may be exempt from U.S. taxes on capital gains accrued after they move here, as well as income derived from Puerto Rican-domiciled businesses. This means that 183 days a year must be spent here, actually living on the island. The zero rate applies only to income and gains derived from investments made after residency has been established and will last until 2035. Income and gains before residency are subject to the island's 10 percent capital gains, but for investments sold after 10 years and before 2035, the rate drops to 5 percent. In America, the tax rate on long-term capital gains and dividends for the top 2 percent is just under 24 percent.
Paulson made billions from bets against the value of securities tied to sub-prime mortgages during the financial crisis, turning him into one of the 100 richest people on the planet. While the world fell apart in 2007, and millions sank into despair, he got richer. Since he has deferred taxes on the bulk of his wealth, being able to move money made in the past is probably what seemed so seductive. A move here would save him a few billion dollars, just like other tax-avoidance schemes. As one who has left the continent to live in peace and harmony in a deeper and more universal connection with the earth, something key is missing from this, not to mention that it is also robbing Uncle Sam at the worst possible time. Making Puerto Rico the 51st state might well harmonize the tax code, rendering this new law null and void, but Republicans aren't too keen on allowing a new state into the union that would be solidly blue.
Okay, so the Manhattan resident did donate $100 million to help conserve Central Park, right near his six-story townhouse, does that mean he would fund public education in Puerto Rico? I remain hopeful about that, though only mildly so. Though when you contrast Paulson with venture capitalist Laurence Rockefeller, who fell madly in love with St. John, some 40 miles across the Mona Passage from here, you start to see the cold emptiness. Rockefeller was spellbound by St. John's beauty, and purchased 5,000 acres only to preserve it, to covet it. He developed an infrastructure that provided the island with fresh water, power and roads. In 1956, he donated the land to the National Park Service, with a caveat that it never be exploited. His was a love of the land, an awareness of the importance of outdoors to well-being, to being well.
Whether Paulson moves here or not is irrelevant to the way the island seems headed. Instead of working on the island's real problems, like a steady, significant loss of the educated elite, lack of recycling, poor educational services, high crime rate related to drug smuggling and inept police, near 15 percent unemployment, outrageous energy costs that have driven manufacturing away, the government of Puerto Rico is currying the rich to promote investments in real estate and consumption. Paulson is one of the largest shareholders in Banco Popular, the biggest bank here on the island. He recently looked at an 8,379-square-foot penthouse with six underground parking spaces that lists for $5 million. It is beside the sea, near where I go to the gym, where my daughter attends school, where Occupy Wall Street isn't and the National Guard is.
"San Juan is heavy on the kitsch but low on the substance when it comes to entertainment options," says Fortune Magazine. I think of the pristine rain forest and the sunny beaches and funky little outdoor restaurants in the plazas and the Old San Juan grace and the Fine Arts Cinema Cafe and I wonder, is it kidding? Every place pales by comparison to New York, entertainment-wise. But that all depends on what you are looking for, now doesn't it? If having a Saks Fifth Avenue on the island is a measure of substance, then dear God help us all.