Congressional Tax Reform Needs to Address Puerto Rico

By Carlos “Johnny” Mendez, Speaker of the Puerto Rico House of Representatives

Puerto Rico is starting to recover from what the Federal Emergency Management Agency (FEMA) has called the worst natural disaster in the history of the United States and now we are facing another storm: the provisions regarding the island in the tax reform bill in Congress.

There is no doubt America needs to revise its tax code. Decades of targeted changes have left numerous loopholes and tax shelters not needed in this century. Puerto Rico as U.S. territory must benefit from those changes. Unfortunately, as it is now, the tax reform bill will be devastating to our economy.

Hurricane Maria forced the closure of more than 5,000 small and medium size businesses on the island, and raised our unemployment rate four percent, doubling that of Louisiana after Hurricane Katrina. The economy will take a nearly an 18 percent hit, according to experts, not considering the massive migration towards Florida and Texas, estimated at 125,000 Puerto Ricans since last September.

The House tax bill imposes a 20 percent tax on products manufactured in Puerto Rico, acquired by the parent companies of the Controlled Foreign Corporations (CFCs). The Senate version calls for a tax of 12.5 percent in the intangible assets for these companies.

Simply stated, if either one of those versions becomes a law, we are bound to lose whatever competitive edge we currently have and the end result will be catastrophic. Almost overnight around 75,000 U.S. citizens would lose their jobs, followed by another 125,000 soon after. This would be the final nail in our economy’s coffin.

Should either of those scenarios materialize, Puerto Rico’s economy would sink to unprecedented levels, with unemployment surpassing the 25 percent rate. This would certainly lead more than 550,000 Puerto Ricans to leave the island, most of them to Florida, within a year.

This is why we request that Congress designate Puerto Rico as a domestic territory for the purpose of the corporate tax code, granting tax exception to our companies’ purchases of raw materials request for manufacturing. This is not a special request.

This is our right in spite of being second class citizens due to our territorial status. Since we are a colony, we do not have the tools to provide incentives to companies in order to attract and retain them. This provision will give us an opportunity.

Furthermore, Congress must approve legislation aimed at amending Section 24 of the US Tax Code to allow eligible families in Puerto Rico to access tax exemptions for dependent children. This action will grant the island an additional $2,900 million in 10 years to help 355,000 families actually living bellow the poverty level.

Congress should also consider expanding the full spectrum of the Temporary Assistance for Needy Families (TANF) program in Puerto Rico to include Two Unemployed Parents Program, which allows families where both parents have lost their jobs, to have access to funds for education and retraining.

As U.S. citizens, we expected the support of Congress on this matter.