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Section 956 Effort Hits Snags In The Senate

May be considered again at upcoming hearing


May 15, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The Calderon administration’s efforts to secure Internal Revenue Code Section 956 tax breaks for U.S.-controlled foreign corporations (CFCs) in Puerto Rico hit new snags last week during a Senate Finance Committee markup of President Bush’s economic stimulus bill.

During the hearing, U.S. Sen. John Breaux (D-La.) served as the Calderon administration’s chief ally by presenting the Section 956 proposal. In a tacit acknowledgement that the proposed amendment might not have enough support to pass, Breaux didn’t call for the measure to be brought to a vote.

Breaux’s leadership role in the matter reportedly came in the wake of a failed effort by Sen. Trent Lott (R-Miss.) to have Finance Committee Chairman Charles Grassley (R-Iowa) include the proposal in the markup. The ranking Democrat on the committee, Sen. Max Baucus (D-Mont.), also declined to support the Section 956 proposal.

Along with Breaux, Sen. Lott and Sen. Orrin Hatch (R-Utah) openly declared their support of the Section 956 measure. However, in the face of opposition by Senate Budget Chairman Don Nickles (R-Okla.) and Sen. Kent Conrad (D-N.D.)--both of whom expressed concerns over the proposal’s cost per job created--Breaux said the issue should be taken up in an upcoming foreign tax bill hearing.

During the discussion, Sen. Rick Santorum (R-Penn.) objected to considering Puerto Rico’s needs in an international context, noting that it is a U.S. territory. Nickles did agree to the matter being considered separately in the future, saying that helping Puerto Rico economically had some merit, but not now.

At the same time, Nickles pointedly declared that Congress shouldn’t approve a job creation program that is too costly based on the number of jobs it stands to generate. He said he understands that the Section 956 amendment could cost the federal treasury more per job than Section 936 cost. Tax losses of more than $300,000 per year, per job were cited as a major reason for the repeal of Section 936 in 1996.

While the Section 956 amendment as such wasn’t brought to a vote, another proposal by Sen. Gordon Smith (R-Ore.) at the hearing did generate a subsequent Puerto Rico-related debate and vote. Sen. Smith introduced an amendment to cut taxes on CFC income by 85% for one year only. Breaux complained that the committee had just made a decision that it wouldn’t help Puerto Rico in a similar manner. However, Sen. Jay Rockefeller (D-W.Va.) supported Smith, saying that the latter’s proposal would cause companies to repatriate an estimated $135 million. Sen. Jim Bunning (R-Ky.) and Sen. Santorum also backed Smith.

Breaux then moved to add profits from Puerto Rico to the Smith proposal. Breaux’s amendment to the Smith amendment caused Finance Committee Chairman Grassley to ask the committee’s staff to estimate the cost of adding Puerto Rico profits. They estimated it would nearly double the cost, from $3.8 billion to $6 billion.

While the Breaux amendment to add Puerto Rico profits to the Smith amendment was approved by a vote of 11-6, the Smith amendment itself was subsequently voted down by a vote of 11-10.

The House Ways & Means Committee didn’t contemplate the Section 956 proposal during its consideration last week of President Bush’s economic stimulus bill. According to a long-time Washington observer, Section 956 supporters Congressmen Charles Rangel (D-N.Y.) and Phil Crane (R-Ill.) made no attempt to add the proposal to the bill because of the opposition of Chairman Bill Thomas (R-Calif.).

This Caribbean Business article appears courtesy of Casiano Communications.
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