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Calderón Faces Tough Going In Tax Cut Lobbying

by Robert Becker

February 23, 2001
Copyright © 2001 THE PUERTO RICO HERALD. All Rights Reserved.

Gov. Sila M. Calderón will be in Washington, D.C. this week in search of new tax breaks for Puerto Rico. Her trip couldn’t be more ill-timed.

Calderón won election last November by tilting leftward on a quasi-nationalist, anti-Navy platform. She seems unaware of how much ill will her anti-Navy stance on Vieques has generated among key Republican members of Congress. She is seeking special tax treatment for Puerto Rico at a time when the commonwealth’s closeness to the United States is being questioned in influential circles in Washington.

Calderón does have some ammunition to argue that Puerto Rico needs tax incentives to help its faltering economy. The phase-out of Section 936 of the U.S. Internal Revenue Code, scheduled to end Dec. 31, 2005, has choked off new investment in Puerto Rico and was a factor in causing some island businesses to leave. Commonwealth budget planners predict that tax revenues for fiscal year 2001-2002 will fall short, from a projected $7.5 billion to $7 billion. Treasury Secretary-designate Juan Flores called the shortfall "critical".

Bankruptcy filings were up 22 percent in January of this year over the same month in 2000. The economy was also rocked by the recent deep cutbacks in Puerto Rican operations by Intel Corp. and Sara Lee, with a loss of more than 3,500 jobs. Commonwealth officials estimate the island has lost more than 22,000 manufacturing jobs since the 936 accelerated phase-out began in 1996. More are expected.

Once Calderón and her lobbyists establish that Puerto Rico is hurting economically, they will make their pitch for tax incentives. They will say: President Bush wants to extend $1.6 trillion in tax cuts to all Americans to get the economy going again. Since Puerto Rico won’t benefit from those cuts, it is only fair that some special tax incentives be whipped up so the island isn’t left behind as the economy recovers. Thereupon Calderón will present her tax incentive package, the details of which she has kept under wraps.

That scenario is going to collide head-on with the political, economic and policy realities under which Washington currently operates. First, seeking special tax breaks for big business is outre in Washington. Recall that 936 was savaged in the Congress in the mid-90s as "corporate welfare," with many Republicans joining in the stomping. Bush needs Democratic support for his tax cuts, and he knows that crafting tax breaks for big business special interests isn’t the way to do that.

Members of Congress will also ask, with undeniable logic, why Puerto Rico should be awarded tax concessions when it pays no federal taxes. Congress is beginning to show signs of Puerto Rico fatigue, as it looks ever more closely at what the United States is getting in return for its billions in annual subsidies.

Calderón's biggest problem will come, however, over Vieques. While her Administration’s position on the Navy's presence in Vieques should not have anything to do with U.S. tax policy, she will find that her fightin’ words against the Navy will be a huge millstone around her neck. Expect Rep. James V. Hansen, R-Utah, to have a say with his Republican colleagues on Ways and Means, the tax-writing committee.

While Hansen does not have a seat on Ways and Means, he is chairman of the Resources Committee, which holds jurisdiction over the territories, including Puerto Rico.

He is deeply displeased with Calderón’s attitude towards the Navy. Another close observer will be Sen. James Inhofe, of the Armed Services Committee, who last week remarked that Calderón was "at war" with the United States.

Not an auspicious beginning to a lobbying trip.

Calderón can marshal some liberal Democrats in her support, including Rep. Charles Rangel, D-N.Y., of Ways and Means, but it won’t mean much. Veteran Republican lobbyist Charlie Black may open some doors for the PDP. Andy Card, Bush' s chief of staff and point man on Puerto Rico, has close ties to island Republicans -- but not to the PDP. The populares' eight years out of power in Puerto Rico have left them with few friends in Washington.

Finally, Calderón has no leverage at the negotiating table. Puerto Rico’s lack of congressional representation is the most obvious drawback, but she also has nothing to persuade the Republicans her administration will depart from the PDP's historic tax-and-spend government models. Her campaign platform included pledges to halt the privatization of government agencies, shied away from reducing Puerto Rico"s mammoth bureaucracy, and promised a host of new, and costly, government programs.

Robert Becker, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at:

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