Drug Companies Move Away From Calderon Tax Exemption Request... San Juan Rep May Become GOP National Chairman... Calderon Hires Republicans To Lobby Against Bush Proposal... Rossello Holds Fundraiser

May 30, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

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Drug Companies Move Away From Calderon Tax Exemption Request

Major corporate lobbyists for Puerto Rico Governor Sila Calderon’s ("commonwealth"/no national party) top federal priority -- tax exemption for their territorial profits -- are telling leading lawmakers on the issue that they are not wedded to the proposal.

The lobbyists for large drug companies are also saying that they would be satisfied with a tax incentive that expires at the end of 2005 that Calderon has rejected.

The companies have been a major force behind the proposal because of their clout with some members of the Congress and because the proposal concerns them as taxpayers.

The distancing comes after a debate in the Senate Finance Committee made it clear that the committee would not approve the Calderon proposal. In fact, the proposal’s chief backer in the committee, Senator John Breaux (D-LA), twice acknowledged during the debate that the proposal lacked the necessary votes.

Because of this, Breaux simply argued for the committee to consider what he suggested was a need to replace another tax incentive for manufacturing in Puerto Rico that expires at the end of 2005 rather than argue for the Calderon proposal.

The Calderon proposal, which would amend Internal Revenue Code (IRC) Section 956, would exempt from 85 percent to 100 percent of a company’s territorial profits from taxation.

The incentive that Breaux said needed replacement is similar in that it effectively exempts corporate income from Puerto Rico from taxation. However, it only exempts 40 percent of the income -- less than half Calderon’s request. It is provided by IRC Sec. 936.

The expiring incentive that companies say they can live with -- but that Calderon has rejected -- is substantially different from both Calderon’s proposal and Sec. 936. Rather than merely exempting Puerto Rico profits from taxation, it reduces taxes for contributions to Puerto Rico’s economy. The contributions can be payments of wages and local taxes and capital investments.

This incentive, provided by IRC Sec. 30A, was created by the federal government in 1993 as a preferred alternative to Sec. 936, which had been abused by companies despite repeated federal efforts to curb abuses. The primary abuse was the allocation to Puerto Rico of income that federal officials felt should have been allocated to the States. This enabled the income to avoid taxes.

Several key federal policymakers who have not agreed to Calderon’s proposal have indicated a willingness to consider extending Sec. 30A. They include top figures on the Congress’ tax-writing committees -- Senate Finance and the Ways and Means Committee of the House of Representatives -- and officials in the Treasury Department and the White House under President George Bush.

From 1997 through 2000, the Clinton Administration and the Congress came close to extending Sec. 30A past 2005 at the request of Calderon’s predecessor, Pedro Rossello (statehood/D). The efforts were single-handedly blocked by the then chairman of the House Ways and Means Committee, Bill Archer (R-TX).

The measure seemed likely to be approved in 2001, however, after Calderon took office. Archer retired in 2000 and Calderon was elected pledging to obtain an extension of 30A.

A leading Calderon representative on the issue has quietly said in Washington that the Sec. 30A extension was not pursued, however, because the Calderon Administration did not see a future in Puerto Rico for the manufacturing plants that relied on the credit. These plants were in industries such as garment manufacturing, needed a relatively large number of workers, and were being attracted to foreign destinations because of much lower wage rates.

The Calderon intimate said that Puerto Rico’s manufacturing future lay, instead, in an expansion of the drug industry. Drug companies have been the primary users of Sec. 936. It provides much them with tax breaks far greater than the wages and local taxes they pay and the capital investments that they make in Puerto Rico -- a principal reason that federal officials have insisted on ending Sec. 936.

In rejecting the extension of Sec. 30A, Calderon also made it clear that she wanted a permanent tax exemption, saying it would be consistent with "the Commonwealth’s fiscal autonomy." She has asserted that this autonomy is the territory’s exemption from federal taxes.

However, the extension of some federal taxes to Puerto Rico and statements by federal officials have made it clear that the autonomy, instead, is the authority to enact local taxes that is also enjoyed by the local governments of the other territories of the U.S. as well as by the States.

A permanent exemption would, though, be a major argument in Puerto Rico against statehood or independence. And that would support Calderon’s premiere political objective.

Calderon is also believed to have rejected federal interest in extending 30A because the federal policy is publicly associated with Rossello — who is now seeking re-election as governor.

Breaux succeeded in his major goal in the Finance Committee debate: obtaining an assurance that the Committee would consider the need to replace Sec. 936. The two most vocal opponents of Calderon’s proposal, Budget Committee Chairman Don Nickles (R-OK) and Ranking Democrat Kent Conrad (D-ND), agreed to consideration.

This consideration is expected to involve a public hearing that would be open to ideas other than Calderon’s. It could lead to inclusion of a Puerto Rico provision in a needed bill to reform laws on the taxation of income from foreign countries (as well as U.S. territories) later this year or next year.

Other ideas for aiding Puerto Rico that have been discussed in the Finance Committee include making the territory or portions of it an "Enterprise Zone" -- which provides investment incentives -- and extending tax benefits for lower income residents of the States to Puerto Ricans.

These measures include applying the Child Credit to persons with one or two dependents in Puerto Rico who pay federal payroll taxes — versus only persons with three dependents as at present. The measures also include extending the Earned Income Credit to Puerto Ricans. Both credits grant funds to low income workers.

Extension of the Sec. 30A credit could also be considered in legislation expected this year to extend a number of expiring provisions of the IRC.

San Juan Rep May Become GOP National Chairman

A representative of the city of San Juan, PR will reportedly be the next chairman of the Republican National Committee. Ed Gillespie, a partner in the lobbying firm Quinn Gillespie and Associates, is said to have been selected to head the national Republican Party for President Bush’s re-election campaign.

Gillespie will reportedly not leave the firm although he will work full-time for the party.

Quinn Gillespie represents San Juan under Mayor Jorge Santini (statehood/R). Its staff includes Puerto Ricans working on the San Juan account.

The firm also has close ties to former Puerto Rico Governor Rossello. Rossello’s campaign coordinator for the States, Manuel Ortiz, is a Quinn Gillespie staffer. The firm also represented the Government of Puerto Rico while Rossello was governor.

Its tie to Rossello originally came from its other name partner, Jack Quinn, a confidant and former Chief of Staff to Vice President Al Gore and a former Counsel to President Clinton. Rossello worked closely with and was an active supporter of both Clinton and Gore.

Interestingly, the firm has also just acquired a new relationship with Governor Calderon’s main ally in the U.S. Senate, Trent Lott (R-MS). A longtime key Lott aide, David Hoppe, has just joined the company.

Calderon Hires Republicans to Lobby Against Bush Proposal

Governor Calderon’s office in Washington is contracting with two Republicans to lobby against a major Bush Administration environmental initiative. The office is reportedly concerned that the initiative would further reduce the requirements for the Navy to clean-up its former range on the island of Vieques, PR. The Bush initiative would exempt military facilities from some environmental requirements.

Current law requires the former range to be cleaned-up consistent with its ultimate intended use. The law requires this to be as an Interior Department Wildlife Refuge and Wilderness area.

Calderon and many Puerto Ricans want most of the land to be cleaned for non-federal ownership, including full public access and, possibly private ownership. This would require changing the law on the use of the land, however.

The Interior and Navy Departments proposed changing the law to permit Puerto Rican ownership of three-quarters of the land when Calderon predecessor Rossello was in office. The change would have applied higher clean up standards to the land.

The departments dropped the proposal, however, when Calderon began to break an agreement between the federal and Commonwealth governments regarding the range.

Calderon’s office retained Wilkie, Farr & Gallagher to work against the application of the Bush initiative to the Vieques clean up in the fiscal year 2004 national defense bill, which President Bush signed into law last week. Working on the issue are lawyers E. Donald Elliott, a former General Counsel of the Environmental Protection Agency during the administration of President Bush’s father, and Russell Smith, a former Republican Counsel to the House Energy and Commerce Committee, which handles many environmental issues.

The Bush initiative -- which was opposed by many environmentalists throughout the country -- was not included in the bill. Calderon Administration officials did not openly express concern about the initiative but Smith acknowledged it to the Washington Post this week.

By contrast, Calderon’s official representative in the Congress, Resident Commissioner Anibal Acevedo Vila, misleadingly suggested to Puerto Ricans that the Senate version of the bill actually strengthened the clean-up requirements. In fact, it did not. The Senate Armed Services Committee’s report on the measure, instead, reiterated the requirements of current law regarding the clean up and asked for reports on the issue.

Rossello Holds Fundraiser

Former Governor Rossello’s campaign held a major fundraising dinner in Washington this week.

Among the attendees were a number of people active in national Democratic and Republican politics, including officials of the Clinton Administration and former aides to Republican members of the Congress who have been active on Puerto Rico issues. Here were also many residents of the area who are of Puerto Ricans origin. Additional guests included San Juan Mayor Jorge Santini (statehood/R) and two statehood party candidates to replace the retiring Acevedo, Senator Miriam Ramirez (R) and former Senate President Charlie Rodriguez (D).

The "Washington Update" appears weekly.

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