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Island Asks Congress For Help
By Ivan Roman
May 28, 2001
SAN JUAN -- Gov. Sila Maria Calderon and other leaders are lobbying Congress for help in turning around Puerto Rico's stagnant economy.
Calderon traveled to Washington last week, pushing for a new tax incentive to lure back manufacturers.
Citing global competition and high local production costs, dozens of companies have eliminated 8,707 jobs since she took office Jan. 2. For many, this is the latest push in a mass exodus spurred by Congress' phaseout of Section 936 of the Internal Revenue Code, which exempted U.S. companies from paying taxes on billions in profits.
To stop the downward spiral, Calderon is lobbying for a tax plan using Section 956, which allows U.S. companies to operate as Controlled Foreign Corporations on the island. Calderon wants companies to be taxed at a 10 percent rate instead of the current 35 percent.
Faced with this higher rate, companies have been investing their profits tax-free overseas.
Calderon said she felt good about the tax plan's chances in Congress. She said Sen. John Breaux, D-La., and Sen. Blanche Lincoln, D-Ariz., both members of the Senate Finance Committee, endorsed the plan.
House members won't be able to blast this plan as "corporate welfare" as they did when they eliminated Section 936, she said. That's because it is designed to attract revenues from corporations that are now doing business somewhere else to avoid paying taxes.
The effort is part of her goal to create 100,000 jobs during her four-year term in all sectors, including tourism, construction, commerce and services.
But manufacturing is still the centerpiece of the government's strategy. Her critics blast Calderon's insistence on an "archaic economic model" that was good in the 1950s and 1960s, when manufacturing was key to pulling Puerto Rico out of poverty, but shouldn't be used in today's global marketplace.
Leo Diaz, president of the New Progressive Party, said Puerto Rico can't compete with places where workers are paid less than $1 an hour.
Former Gov. Pedro Rossello was right to strengthen the construction and service sectors and not depend so much on manufacturing, Diaz said. During his tenure, unemployment decreased from 17 percent when he took office in 1993 to 9 percent when he left last December. It rose to 11.2 percent in April.