The problem is that once the rich have settled, populist movements will grow to tax them, and the rich being settled as they are, can't easily escape these politically coordinated expropriations.
The result is that the rich begin to slowly trickle out, at a rate that is not fast enough to make the negative repercussions of the involuntary income redistribution that voters support apparent to them.
I think this possibility (inevitability?) is seen pretty clearly by the rich people who move to Puerto Rico. They know the party isn't going to last forever. But, these are the same people who uprooted their lives to spend 183 days per year in PR, so I have a feeling the majority are the type of people who will leave when this happens.
Presumably the loss of a tax base. I think OP is saying the laws slowly drive people out in a way that doesn't make it apparent the reason people are leaving is those laws. Eventually you wind up with a situation that levies high taxes on the rich but no people to actually tax.
For the rich individuals: they either get taxed at high rates, resulting in a loss of enjoyment in their rights, or have to suffer the disruption of emigrating to a new country.
For the former tax haven: it loses out on capital growth, which means less economic growth.
I think that Act 22 folks are often the "barely rich" or "incorrectly categorized as rich", where differential tax policy actually has an effect on their lifestyle (and therefore more strongly drives behavior).
Take someone with $5MM in investable assets. Using a simplistic 4% rule of thumb, that can generate $200K of income per year. Tax that at 4%, and you have $192K to spend. Tax it at a blended 25% and you have $150K to spend. At that level of income, $3500/month is very much a noticeable difference, IMO. ($16K/mo vs $12.5K/mo spendable.)
Now, consider that $150K/yr living in the mainland US goes farther than $150K/yr on Puerto Rico, and someone with $5MM and eligible for Act22 isn't going to move to PR without Act22.
Peter Schiff's quote in the article sums it up very well, I think: “Who would come to a bankrupt island to pay high income taxes?”
That's still $150k for doing effectively nothing. That person could choose to supplement their income with a paid job or a business. I'd love to be in that position, as would the vast majority of people in the world.
Of course! No one ever argued that having $5M investable assets was a poor position to be in. That family absolutely has wide variety of choices they can make, all of them pretty damn good.
The question is Puerto Rico's motivation/justification/choice to offer Act 22 tax advantages to bring the majority of that $192K of spending onto the island or not.
The result is that the rich begin to slowly trickle out, at a rate that is not fast enough to make the negative repercussions of the involuntary income redistribution that voters support apparent to them.