Calderon Sets Federal Agenda... Governor Does Not Discard Campaigning for President... Democrat’s Plan Would Aid PR But Not Way Governor Wanted... Inhofe Gives Up on Navy Range

January 31, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. Calderon Sets Federal Agenda

Puerto Rico Governor Sila Calderon ("commonwealth" party/D) had a six hour meeting here this week with her top advisers on federal affairs. The session surveyed her federal priorities.

Heading the list was Calderon’s proposal that up to 100% of profits received by companies based in the States from certain subsidiaries in the islands be permanently exempted from federal taxation. The proposal, which would amend Section 956 of the Internal Revenue Code, would essentially recreate tax code Sec. 936 as it existed before the federal government eliminated most of the tax exemption in 1993. Sec. 936 has been totally repealed as of the end of 2005.

Calderon’s proposal is not favored by most leaders of the Congress’ tax writing committees or the Treasury Department, but it was formally introduced in the last Congress by a few tax committee leaders. One of its problems has been the cost -- over $32 billion over 10 years. Calderon has agreed to amendments that would reduce this amount by at least $21 billion. The amendments would supposedly limit the profits that would be exempted to those substantially attributable to work done in Puerto Rico, excluding those profits attributable to work done in the States.

The second item on Calderon’s agenda was the proposal by Senator Ben Nighthorse Campbell (R-CO) to withhold transfers to Puerto Rico’s territorial government of most collections of the taxes on rum produced in the territory and foreign countries, unless the Commonwealth reforms a tax increase on beer enacted by the Calderon Administration. A local brewery was exempted from the beer tax. The transfers are otherwise expected to subsidize the Commonwealth treasury to the tune of $360 million this year.

This week, a spokeswoman for the Senate Finance Committee reiterated the Committee’s intent to consider the proposal this year. She contradicted statements by Calderon’s official representative in the Congress, Resident Commissioner Anibal Acevedo Vila ("commonwealth" party/D). Acevedo had told Puerto Rico reporters that statements by Committee Chairman Charles Grassley (R-IA) and Ranking Democrat Max Baucus (MT) saying that the proposal would be considered were a "formality" and a "compromise." He said that the statements’ purpose was to enable Campbell to escape embarrassment when Acevedo got Grassley and Baucus to kill the proposal.

Calderon’s third objective was a thorough clean-up of the Navy’s target range on the island of Vieques, PR, and a transfer of the land to local ownership after the Navy closes the range May 1. Former President Clinton had agreed with Calderon’s predecessor, Pedro Rossello (statehood party/D), to a clean-up and federal disposal of three-quarters of the range, with the rest going to the U.S. Department of the Interior. Federal law now gives all of the land to the Interior Department without requiring a thorough clean-up.

Calderon’s opposition to other aspects of the Clinton-Rossello agreement, including the May 1, 2003 closure date versus a closure in 2001, has intensified opposition in the Congress to federal disposal of the land.

A fourth issue reportedly discussed was changing the formula for federal payments for hospital services in Puerto Rico under Medicare, the program paying for health care for the elderly. Payments in Puerto Rico are based 50% on the rates that apply elsewhere in the nation and 50% on local cost factors.

President Clinton had proposed changing the formula to 75% national rates and 25% local costs. The change would have increased the payments by an estimated $37.5 million a year, with this amount increased for inflation. The proposal was blocked in 2000 by Trent Lott (R-MS), Calderon’s closest ally in the Senate. It has been included, however, in various recent proposals to reform Medicare.

Joining Calderon and Acevedo in the meeting were: the head of Calderon’s offices in the States, Mari Carmen Aponte; Republican lobbyist Charlie Black; and lobbyists from two other firms, PattonBoggs, a mainly Democratic firm, and Winston & Strawn. Together the firms are expected to be paid at least $3 million this year by Calderon’s Administration.

Calderon also has a number of other lobbying, public relations, law, accounting, and political consulting firms on retainer in the States to help with these and other goals.

Governor Does Not Discard Campaigning for President

During a news conference in New York, Calderon did not discard the idea of campaigning for President Bush’s re-election in 2004.

Instead, she said that it was "a bit premature" to talk about the matter.

Calderon has made a great effort to get close to the president . . . without great success. But observers expect her to continue to try. One reason is that Republicans are in a more advantaged position to help her in Washington than are Democrats, and support from the federal government could be a significantly helpful factor as she seeks re-election in 2004.

Calderon also seeks to restrain the Bush Administration from acting on its views on the Puerto Rico democracy issue. The Administration agrees with Puerto Rico Republicans that Puerto Ricans should choose the territory’s ultimate status -- which means a choice between U.S. statehood and nationhood. Calderon, by contrast, advocates either a shared power arrangement with the U.S., that would in reality be impossible to enact, or else a continuation of the current territorial status.

The governor is also heavily influenced by her chief federal lobbyist, Republican Black.

In addition to paying Black, Calderon’s efforts to influence President Bush have also included:

  • lavishly praising the president;
  • giving him credit for Democratic policy initiatives;
  • supporting the re-election campaigns of his brother Jeb Bush (R-FL) as governor of Florida, and of New York Governor George Pataki (R-NY).

Calderon declined to discuss her involvement in the 2004 national campaign, but she did say that her administration would continue another Bush-directed effort: the multimillion dollar voter registration drive, to register residents of the States of Puerto Rican origin to vote. A top strategist says Calderon’s goal is to influence Bush political adviser Karl Rove to overrule the Treasury Department’s objections to proposed tax exemption for profits that companies in the States receive from certain territorial operations.

Calderon has some Democratic ties through PattonBoggs, and she has said that she is "a Democrat at heart" but she says that she will not choose between the national parties. She also is closer to Republicans in Washington -- such as Senator Lott -- than to Democrats and has given much more support to Republicans in the States than to Democrats.

Democrat’s Plan Would Aid PR But Not Way Governor Wanted

Puerto Ricans could get significant benefits from the latest major economic plan, one announced by U.S. Senate Minority Leader Tom Daschle (D-SD).

The plan would give all taxpayers -- including those who only pay payroll taxes (Social Security and Medicare taxes) and not income taxes -- $300 per family member this year, and up to a maximum of $1,200 per family. This could include Puerto Ricans, who pay payroll taxes. (Few pay federal income taxes.)

The Daschle plan would also give State and local governments $40 billion this year. Territorial governments, such as Puerto Rico’s, would probably be included. The proposal would provide $12 billion in unrestricted aid to State governments, $3 billion to local governments, $5 billion for anti-terrorism efforts, $6 billion for elements of the 2001 elementary and secondary education law that President Bush has not proposed funding, $10 billion for Medicaid -- the program providing medical services for low income individuals, and $4 billion for transportation infrastructure -- including $2.9 billion for highways, $700 million for mass transit, and $400 million for airports.

The plan would also cut taxes for small businesses. These reductions would not apply to small businesses in Puerto Rico, however, because they do not pay federal income tax. On the other hand, a one year increase in the deduction for new equipment could benefit companies based in the States with operations in Puerto Rico.

Daschle’s plan is one of at least 10 plans that prominent Democrats have offered. But there are many similarities among these plans, and Daschle’s is very similar to the major plans outlined recently by House Democratic leaders and the Ranking Democrat on the Senate Finance Committee, Max Baucus (D-MT).

The Senate Minority Leader’s proposal does not include Calderon’s proposed amendment to tax code Sec. 956. In fact, his plan goes in the other direction. It proposes a crackdown on companies that move operations outside of the States to avoid federal taxation. Prompting companies to make such a move to Puerto Rico is one of the stated goals of Calderon’s proposal.

There was a time when Calderon hoped that Daschle would include her proposal in an economic stimulus bill. It was when the governor "explained" the proposal to the Senate Democratic leader and he agreed to advance it.

Calderon’s explanation was far less than forthcoming, however, and later the proposal’s full nature and problems were exposed. The Senate Democratic leader dropped the idea after Baucus publicly contradicted Calderon’s claim that he supported it. A Daschle spokesman later alluded to arguments against the proposal and said that Daschle would work with Baucus on economic assistance for Puerto Rico.

Daschle was also criticized by a Republican commentator in national publications for supporting Calderon’s proposal. It would reverse tax reforms that the senator had previously supported, and it is inconsistent with his opposition to companies setting up operations out of the States to avoid federal taxation. ?

Inhofe Gives Up on Navy Range

Senator James Inhofe (R-OK) has decided not to challenge the U.S. Navy’s plan to replace its combat training grounds on the island of Vieques, PR by May.

When the plan was announced January 10, Inhofe said that he would explore ways of blocking it although he recognized that it would be difficult to do so. But this week, Inside the Navy, which reports on Navy news, quoted him as saying, "I have done all I can . . . and I lost."

Inhofe’s decision was partially made because he now has other battles to fight. He has been the Senate’s leader on the Vieques issue as the top Republican on the Senate Armed Services Committee’s subcommittee on military preparedness. This month, he became the Chairman of the Environment and Public Works Committee.

In saying that he would not fight the Vieques replacement plan, Inhofe announced that he would push to exempt military ranges throughout the U.S. from environmental regulations that pose impediments to training.

Inhofe has not moderated his views on the Vieques issue, however. Inside the Navy quoted him as also saying that it is "a life or death issue." He does not think that the replacement plan will provide training that is as good as that which the Vieques range provides – the legal standard for replacing the range.

This is because the plan will break up the practices into different exercises conducted at a number of locations and will use computer simulation instead of real targets. The Vieques range is the only location that east coast-based U.S. Navy and Marine Corps forces have for practicing all of the tactics used in a combat amphibious invasion -- Marines storming ashore while planes bomb from above and ships fire shells from the sea – at the same time and in the same place.

To support his contention, Inhofe said he was relying on the advice of top military experts in preference to the judgment of the key developer of the plan, Admiral Robert Natter. Natter is Commander of the Atlantic Fleet and the range is the Atlantic Fleet Weapons Training Facility. Significantly, Natter was also the key military negotiator in the federal talks on the issue with then Governor Rossello that led to then President Bill Clinton setting this May 1 as the date when the Vieques exercises could end.

Inhofe also remains upset that the range is being closed because of protest-driven political considerations rather than because of military needs. He warns that this sets a precedent that threatens military bases elsewhere.

In initially reacting to the plan, Inhofe said that:

"It is a sad day for America when we allow a handful of rock-throwing, anti-American agitators and their propaganda-wielding fellow travelers to run us off of property we own, and which we legitimately use. . . we are unwisely capitulating to political considerations . . .

"I have fought . . . to defend the Navy’s right to conduct integrated live-fire training . . . on U.S.-owned property on Vieques. Such training saves lives and strengthens our military . . .

"Military experts continue to confirm that inert training and virtual-simulated training cannot replace live-fire training, and that Vieques provides a unique environment that cannot be replaced . . .

"The fact is that the Navy is tired of being harassed on Vieques, and rightly so. It is a disgrace how some of our fellow American citizens in Puerto Rico have treated our military in Vieques -- destroying property, violating trespassing laws, and subjecting our uniformed soldiers and sailors to physical threats and petty violence.

"I want to commend the many patriotic Americans in Puerto Rico who have consistently supported the Navy training mission in Vieques in the face of daunting political obstacles. I applaud them for seeking constructive ways to resolve problems and to insure that the U.S. military always acts as the good neighbor they can and should be -- just as they have done in other communities throughout the United States and around the world. I urge our pro-Navy friends in Puerto Rico to keep their spirits up and to know that their efforts have been, and will continue to be, greatly appreciated by many more of their fellow citizens throughout America than they may realize.

". . . bases and facilities no longer needed to support Vieques training will be closed. . .

". . . properties on the eastern side of [Vieques] will be transferred to the . . . Department of the Interior. It is the intent that these properties be held in reserve for a possible national emergency . . . "

The "Washington Update" appears weekly.

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