Governor’s Office Says Senate Committee OK’d 956 Amendment… Calderon Still Locked Out Of White House…She Continues Voter Registration Drive In States…House Committees Vote To Improve Puerto Rico Medicare Rates

June 20, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. Governor’s Office Says Senate Committee Approved 956 Amendment

Puerto Rico Governor Sila Calderon’s Washington office is telling people that the U.S. Senate’s Finance Committee has approved her proposal that profits that companies based in the States receive from U.S. territories be exempted from federal taxation.

The claim is being made in the office’s efforts to obtain congressional approval of the proposal.

There is no truth to the claim, however. In fact, the proposal’s principal supporter in the Committee, Senator John Breaux (D-LA), publicly recognized last month that the Committee had rejected it.

The office’s official Internet site, however, states that, "On May 9, 2003, the Senate Finance Committee voted in support of Governor Sila Calderon’s Section 956 economic development proposal, by a vote of 12-6 with three members abstaining."

It goes on to say that, "Senators voting in support of the proposal included Majority Leader Bill Frist (R-TN), Democratic Leader Tom Daschle (D-SD), Committee Chair Charles Grassley (R-IA) and Ranking Member [senior Democrat] Max Baucus (D-MT) . . . Other Senators also voting in support of Governor Calderon’s proposal included Senators John Rockefeller, (D-WV), Blanche Lincoln (D-AR), James Jeffords (I-VT), and Kent Conrad (D-ND)."

Calderon’s proposal would amend Section 956 of the federal tax code (IRC). It would exempt from 85 to 100 percent of the earnings that companies in the States receive from ‘controlled foreign corporations’ (‘CFCs’) in U.S. territories. The tax exemption would be permanent.

Breaux raised the proposal in the Committee May 9th but immediately acknowledged that a majority of the members would vote against it.

During the debate that ensued, one of the members who is said to have voted for the proposal actually helped lead the discussion against it: senior Budget Committee Democrat Conrad.

Another senator who is alleged to have voted for it -- Baucus -- has publicly opposed it. He stated his opposition after Calderon told reporters that he had endorsed the proposal in a private meeting.

Committee Chairman Grassley rejected a request from Senator Trent Lott, another Committee member, in favor of the proposal. Lott is Calderon’s principal Senate ally.

Democratic Leader Daschle initially supported the proposal in a meeting with Calderon but then backed away from it after Baucus opposed it. A spokesman publicly acknowledged that key tax policy-makers considered it to be bad policy.

Frist, Rockefeller, Lincoln, and Jeffords have not taken a position on the proposal.

Recalling that the Committee "refused" the proposal earlier in the May 9 meeting, Breaux later that day made a different proposal relating to Puerto Rico. It was that assets of CFCs in Puerto Rico be included in an unrelated amendment that would have exempted from taxation 85 percent of CFC assets sent to the States from anywhere in the world for one year only.

Puerto Rico CFC assets were already included in the amendment and the Committee approved this later Breaux request.

The most important difference between the amendment and the Calderon proposal is that the amendment was intended to persuade companies to take money out of CFC locations rather than to encourage them to invest it in CFC areas. This incentive would have been provided by the tax cut applying for one year only -- versus forever, as in the Calderon proposal.

Calderon’s office is using its false claim of the Committee’s approval to encourage readers to lobby for full congressional passage of Calderon’s proposal. "In order for the Section 956 proposal to move forward in Congress, it is important that Senators hear from people like you" it reads.

Readers who want to "Take Action Now" are given an e-mail message to their representative in the U.S. House of Representatives as well as to each of their two U.S. senators. The messages support the Calderon proposal. Simply adding a name and address and pushing a button sends the e-mails.

The message includes a "Required Text." It urges the member of Congress’ "active support" of the Calderon proposal, saying that it "has garnered the unprecedented support" of Grassley and Baucus (neither of whom actually support it).

Senders can then include suggested language or add their own thoughts. The suggested language claims support for the proposal from Senate Majority Leader Frist and Democratic Leader Daschle. It also asserts that the proposal would benefit the national and territorial economies.

A related section of the Internet site inaccurately describes the Calderon proposal. It says taxes on profits from U.S. territories would be "deferred." In order for taxes to be deferred, they have to be payable at some point. Calderon’s proposal would exempt the profits from taxation forever.

The explanation also curiously contends that "the U.S. and most of the world enjoyed substantial economic growth" from "1996 until a new administration under Governor Sila M. Calderon assumed office in 2001." Although Calderon’s policies are generally considered in Puerto Rico to have helped stagnate the territorial economy, there is no evidence to suggest that she is responsible for the slowdown in the national and world economies.

Inaccurate claims and suggestions by Calderon and Puerto Rico Resident Commissioner Anibal Acevedo Vila ("commonwealth" party/D) of federal support for their Washington priorities have repeatedly backfired. Democratic senators have complained that their positions were misrepresented on the Vieques Navy range and political status issues. In the last Congress, the chairman of the House of Representatives Ways and Means Committee as well as the chairman of the Senate Finance Committee publicly opposed Calderon’s Section 956 proposal after it had been said or suggested that they supported it.

The new section of the Internet site is one of five new sections on federal legislative proposals. The other proposals advocate: funding for Tren Urbano, the commuter rail system being built in the San Juan metro area; federal payments for hospital services in Puerto Rico for the aged and disabled at the national rates versus the current special rates for the territory; three bills by Acevedo Vila to protect land and water areas in the territory; and Acevedo’s legislation to expand the very limited grant that the territory receives for temporary assistance for very low-income families.

A company named Capitol Advantage produced the new Internet site sections. The company claims to have generated 8.6 million messages to the Congress this year and 10.1 million last year for its various clients. Federal policymakers discount the importance of mass e-mail messages of this sort, however, recognizing how the messages are generated.

Calderon’s Washington office heads the Puerto Rico Federal Affairs Administration. The agency also has regional and satellite offices in 12 cites in States. Calderon has proposed a $10 million budget for the agency for the year beginning July 1. But this amount does not include millions of dollars in other spending that the office helps direct.

Calderon Still Locked Out of White House

Puerto Rico Governor Sila Calderon ("commonwealth"/no national party) failed to gain access to the White House during a visit to Washington this week, despite making another major effort to have her first top-level meeting in the Bush White House.

The Puerto Rico governor made failed efforts to meet with President Bush, Vice President Cheney, and First Lady Laura Bush. Presidential advisors recommend against a meeting with Calderon because of her unrealistic proposals such as the Sec. 956 amendment and because they are concerned that she will misrepresent what is said, as she has after past conversations with federal officials.

They also do not want a meeting to be misunderstood as indicating that the President is closer to Calderon than he is to the Republicans and statehood advocates in Puerto Rico who they consider to be reliable allies.

Instead of White House meetings, Calderon was afforded sessions with two Bush Cabinet members: Commerce Secretary Don Evans and Trade Representative Robert Zoellick.

House Committees Vote to Improve Puerto Rico Medicare Rates

Two committees of the U.S. House of Representatives this week voted to improve the rates that Medicare pays for hospital services in Puerto Rico. Medicare is the federal health insurance program for the aged and the disabled.

The committees -- Ways and Means and Energy and Commerce -- approved a bill that would change the rates from 50 percent based on the rates that apply elsewhere in the nation and 50 percent local cost factors to 75 percent based on the national rates and 25 percent based on local costs. The bill is expected to be considered by the full House next week

The change would be phased in over three years. The rates would shift to 59 percent national rates and 41 percent local costs in 2004 and 67 percent national rates and 33 percent local costs in 2005 before reaching the 75/25 formula in 2006.

The 75/25 formula would increase payments in Puerto Rico $30 million to $40 million a year.

The bill would also grant Puerto Rico’s Medicaid program an additional $25 million a year to help pay for prescription medicines outside of hospitals for low-income individuals who also qualify for Medicare.

The primary purpose of the bill is to add an outpatient prescription drug benefit to Medicare. The benefit would subsidize rather than fully pay for medicines for Medicare beneficiaries who do not qualify for Medicaid.

While the general drug benefit would apply to Medicare recipients in Puerto Rico in the same way that it would apply to recipients in the States, the subsidy for drug benefits for dual Medicare and Medicaid recipients would be limited in the case of Puerto Rico although it would not be limited in the States

Acevedo Vila has not recognized -- or acknowledged -- the disparity, however. He said this week that the bill provided for "parity" for Puerto Rico in the new drug assistance benefit.

Acevedo has not been a significant force in lobbying on the Puerto Rico provisions of the bill. More influential have been lobbyists for the Puerto Rico Hospital Association, especially Luis Baco, who worked on the issue under Acevedo’s predecessor, Carlos Romero-Barcelo (statehood/D), and Calderon’s predecessor, Pedro Rossello (statehood/D). A key role has also been performed by the coordinator for the States of Rossello’s 2004 gubernatorial campaign, Manuel Ortiz. Ortiz is lobbying for the proposal on behalf of San Juan Mayor Jorge Santini (statehood/R).

Extensive lobbying has also been done by others, including the National Puerto Rican Coalition, an umbrella group of residents of the States of Puerto Rican origin.

The Puerto Rico hospitalization rates improvement legislation originated in a proposal that President Clinton made in 2000 after lobbying by the Hospital Association, Romero, and Rossello. It won bipartisan support in the Congress that year but was blocked by Calderon ally Lott and by unrelated differences between Democrats and Republicans on the overall Medicare reform legislation.

The U.S. Senate considered its version of the legislation this week. It is expected to pass a bill next week.

The Senate version would apply the national hospitalization rates to Puerto Rico. It would also grant the territory $30 million a year towards the cost of prescription drugs for Medicare beneficiaries who also qualify for Medicaid.

Puerto Rican lobbyists made a concerted effort this week to get the Ways and Means Committee to mimic the more generous Puerto Rico provisions in the Senate bill. Health Subcommittee Chairwoman Nancy Johnson (R-CT) was inclined to agree but full Committee Chairman Bill Thomas (R-CA) did not.

Governor Calderon, who has put less effort into the issue than Acevedo, tried to get into it this week with a trip to Capitol Hill of her own. Although the trip was billed as a "lobbying" visit, Calderon did not meet with members of Congress who have been cool to equal treatment of Puerto Rico in Medicare hospitalization rates.

Instead, she met with a principal sponsor of the Senate provisions, Finance Committee Chairman Grassley, and two House members, Jim McCrery (R-LA) and Jerry Weller (R-IL), rather than a principal decision-maker in favor of the House provisions.

Calderon Continues Voter Registration Drive in States

Governor Calderon went to Philadelphia this week to promote her campaign to register residents of the States of Puerto Rican origin to vote where they live. Pennsylvania Governor Ed Rendell (D) joined her in a registration drive event.

The votes are intended to compensate for Puerto Rico’s lack of votes in the federal system. Calderon hopes that voters of Puerto Rican origin in the States will influence the federal government to support her federal proposals, such as the tax code Sec. 956 amendment. So far, the strategy has not worked.

Calderon, however, said that she would continue to spend $6 million a year on the campaign through the 2004 presidential election. It claims to have helped register 70,000 to nearly 100,000 voters over the past year.

The "Washington Update" appears weekly.

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