Section 936 and the tax law that kept the boom going

Operation Bootstrap's original tax exemptions, created by the Industrial Incentives Act of 1947, were local legislation and never meant to last forever: a ten-year window, destined to run out as Puerto Rico's manufacturing base matured. Instead of letting the incentive structure expire, the arrangement's economic engine came to depend on a federal-level successor. Section 936 of the U.S. Internal Revenue Code allowed U.S. corporations to exempt from federal tax income with a Puerto Rico source, effectively extending the central bargain of Manos a la Obra indefinitely, this time at the federal rather than the local level.

That federal exemption regime is what truly allowed the shift described in the Operation Bootstrap story —away from food, tobacco, and clothing and toward pharmaceuticals, chemicals, machinery, and electronics— to keep expanding through the 1970s and 1980s. Those higher-value industries needed a tax structure stable enough to justify long-term capital investment, and section 936 gave exactly that for decades.

The trade relationship that grew out of this arrangement was unequal by design. By 2005, a later figure drawn from the same sources behind this era's economic story, the continental United States remained Puerto Rico's dominant trading partner by a wide margin, receiving 86 percent of the island's exports and supplying 69 percent of its imports. That imbalance was no accident. It was the direct legacy of a trading structure built, piece by piece, around the Bootstrap tax framework and section 936.

Toward the end of this era, in the mid and late 1990s, the federal government had already begun phasing out the section 936 exemptions, a policy turn that sits right at the edge of this site's scope. That phase-out, and the deeper economic strain it eventually contributed to, belongs to the next chapter of Puerto Rico's history, not this one. What matters here is simpler: for about fifty years, a single piece of the federal tax code did more to shape the island's economy than nearly any other single policy of the Estado Libre Asociado era.

Sources: Operation Bootstrap. See Sources. Freeze 2026-08-22.