U.S. Insular Areas: Information on Fiscal Relations with the Federal Government

Pursuant to a congressional request, GAO discussed fiscal arrangements between the U.S. government and five U.S. territories, focusing on: (1) federal taxes and customs duties collected in the territories; (2) current federal program expenditures; (3) the income tax rules that apply to the territories; and (4) territorial residents' participation in federal social programs. GAO noted that: (1) territorial corporations and U.S. companies with qualifying territorial subsidiaries are subject to different tax rules; (2) territorial residents do not pay federal income taxes on their local territorial income, but residents with U.S.- and foreign-source income are taxed differently depending on their territorial residence; (3) the amounts of tax revenue transferred between the U.S. government and the territorial governments depends on the territory; (4) local income tax revenues ranged from $30 million to $2.4 billion in 1993; (5) territorial residents are subject to social security and Medicare taxes, but many other federal taxes do not apply to territorial residents; (6) the application and retention of excise taxes and custom duties depends on the territory; (7) federal expenditures amounted to $10.3 billion in fiscal year 1993; (8) residents' participation in federal social programs varies by territory; and (9) if certain social programs are fully extended to the territories, the cost to the U.S. government could exceed $3 billion annually.