How exactly Puerto Rico could restructure its mountain of debt is the $72-billion question that everyone from New York to San Juan is asking. As an unincorporated territory of the U.S., Puerto Rico cannot file for bankruptcy protections under Chapter 9 of the United States Bankruptcy Code. Puerto Rico is caught in a legal Catch-22: it is allowed to pile up bonds as if it were a municipality but it cannot restructure or declare bankruptcy like Detroit, Stockton or any of the other American cities that have defaulted in recent memory.  

The White House said that “no one in the administration or in D.C. [is] contemplating a federal bailout of Puerto Rico.” That sentiment is certainly widespread in the House; however, in the Senate and among the lineup of presidential hopefuls there is more sympathy for Puerto Rico's debt woes. Jeb Bush and Hillary ClintonHillary Diane Rodham ClintonSanders campaign reports raising M in less than a day The Memo: Bernie Sanders’s WH launch sharpens ‘socialist’ question Roger Stone invokes gag order in new fundraiser MORE have both publicly stated that Puerto Rico should be entitled to the same bankruptcy provisions as mainland municipalities and they have several prominent Senators on their side. Especially since most of the debt stems from skewed federal legislation that has ruined the island’s economic potential. 

To begin with, the Jones Act of 1920 is single-handedly responsible for Puerto Rico’s high cost of living. It mandates that maritime commerce between U.S. ports be done solely with U.S crew and ships. As a result, the island loses $537 million per year, by paying 15 cents more per gallon and 30 percent more for liquefied natural gas. It's no wonder that its residents have left in droves for the mainland. 

But legislative quirks cut both ways.  

Puerto Rico is selling itself as a tax haven for wealthy American investors. Act 22, passed in 2012, eliminates taxes on Puerto Rican-sourced investment income for new residents to the island. The Puerto Rican government needs an influx of capital if it is to have any chance of paying off its debts without a federal bailout or a dramatic restructuring of its debt obligations, and Act 22 is as good as a personal invitation US billionaires to relocate their to the island.

Moreover, despite the White House's assurances that there's no possibility of a “bailout,” an obscure amendment to the U.S. tax code is providing Puerto Rico with a lifeline to continue making payments on its debt burden. The Internal Revenue Service released Notice 2011-19 on April 18, 2011, in which it determined that Puerto Rico's manufacturing excise tax is an “income tax” for all intents and purposes. This means that “nonresident corporations, residents and individuals” who pay the Puerto Rican tax can credit it against their U.S. income tax bills. 

The IRS’ determination was ostensibly intended to protect American entities from “double taxation” on foreign income. In effect, however, it amounts to an indirect U.S. subsidy to the Puerto Rican government. Since 2011, the Puerto Rican government has collected nearly $9 billion from the U.S.-credited excise tax. In 2015, the excise tax accounted for 20 percent of total government revenue. The non-resident taxpayers have simply credited their Puerto Rican taxes burden to their US income tax, meaning the US Treasury is ultimately footing the bill. Non-resident businesses, partnerships and individuals are merely acting as conduits for an under the table bailout of Puerto Rico's “unpayable” debt burden. As long as the 2011-19 tax loophole obtains, the White House can legitimately claim that there will be no “bailout” of Puerto Rico—just a backdoor tax subsidy that amounts to the same thing. 

Legislatively, there is a clear path forward. Pedro Pierluisi, the commonwealth's resident commissioner in Congress, has introduced two bills to the House. One would schedule a referendum on statehood by January 2019; the other would entitle the commonwealth to Chapter 9 bankruptcy protections. House Speaker John BoehnerJohn Andrew BoehnerCrowley, Shuster moving to K Street On unilateral executive action, Mitch McConnell was right — in 2014 Bill Clinton jokes no one would skip Dingell's funeral: 'Only time' we could get the last word MORE (R-Ohio), however, has signaled his opposition to granting Puerto Rico Chapter 9 protections. BoehnerJohn Andrew BoehnerCrowley, Shuster moving to K Street On unilateral executive action, Mitch McConnell was right — in 2014 Bill Clinton jokes no one would skip Dingell's funeral: 'Only time' we could get the last word MORE sent Pierluisi's bill to the Judiciary Committee, where it could remain deadlocked for months, probably too late to prevent a default. And even if the bill makes it out of the Judiciary Committee it would still have to pass through a hostile House and a split Senate. 

But any discussion about Puerto Rico should start from acknowledging Washington’s own role in the crisis. When Sen. John McCainJohn Sidney McCainMellman: Where are good faith and integrity? GOP senator says Republicans didn't control Senate when they held majority Pence met with silence after mentioning Trump in Munich speech MORE (R-Ariz.) sought in 2010 to repeal the Jones Act, his request was shot down. In any case, the 2011-19 loophole and the influx of American capital attracted by Act 22 will help Puerto Rico stay afloat until Congress decides whether to grant Chapter 9 bankruptcy protections or to bailout the territory. 

Held is a financial consultant currently living in Geneva, Switzerland.