UPDATE Leads To Governor's Office Dropping Tax Plan Claim... Chairman Backs One Year 855 Tax Cut For Manufacturers... Committee Leaders Ignore Acevedo Pleas To Keep Navy Base 

July 11, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. UPDATE Leads To Governor's Office Dropping Tax Plan Claim

Puerto Rico Governor Sila Calderon’s offices in the States have deleted most false claims of U.S. Senate committee approval of her top federal priority from their Internet Web site.

The false claim was first disclosed by UPDATE three weeks ago. The article ultimately led to complaints from the Senate committee about the offices’ assertions.

Similar elements of the Web site identified by UPDATE have also been deleted.

The site’s bogus assertion concerned Calderon’s proposal for federal tax exemption for profits that companies based in the States receive from U.S. territories. The site asserted that the Senate Finance Committee had approved the proposal in a May meeting. The proposal’s principal proponent in the meeting, however, said at the time that the Committee rejected it.

The proposal 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 site stated that the proposal had been approved by a vote of 12 to 6. It identified those voting in favor as including Senate Majority Leader Bill Frist (R-TN), Democratic Leader Tom Daschle (D-SD), Committee Chairman Charles Grassley (R-IA) and Ranking Democratic Member Max Baucus (D-MT), and Senator Kent Conrad (D-ND).

In fact: Conrad helped lead the opposition to the proposal in the meeting; Baucus has publicly opposed it; Grassley privately rejected the request of Senator Trent Lott (R-MS) to include the proposal in the bill being considered in the meeting; a Daschle spokesman said that the opposition to the proposal would prevent its passage, and Breaux raised -- but withdrew -- the proposal, citing overwhelming opposition to it.

Calderon’s offices used the fictitious information to encourage readers to lobby for full congressional passage. The Web site electronically enabled readers to "Take Action Now" by sending an e-mail message to all of their representatives in the Congress. The message could be sent by adding a name and address and pushing a button.

The message included a "Required Text." It urged "active support" of the proposal and stated that the proposal "has garnered the unprecedented support" of Grassley and Baucus.

Readers were then offered a choice of sending additional language or adding their own thoughts. The suggested language claimed support for the proposal from Frist and Daschle.

Although these elements of the Web site have now been deleted, the site still includes a separate sham statement on the issue by the director of the offices, Mari Carmen Aponte. It maintains that "a bi-partisan group of 12 members of the Senate Finance Committee gave indications of their support for the Governor's proposal" in May.

Aponte’s false assertion like the now-deleted false claims on the Web site, alleged support for Calderon’s proposal based on a vote in favor of Puerto Rico’s inclusion in legislation intended to do the opposite of Calderon’s goal. The legislation would cut the tax on CFC assets repatriated to parent companies in the States for a one year period by 85 percent. Its goal is disinvestment from the non-State areas in which CFCs are located. Calderon has said that her goal is to encourage investment in Puerto Rico.

Another section of the Internet site continues to deceptively describe the Calderon proposal. It states that taxes on profits from U.S. territories would be "deferred." In fact, Calderon’s proposal would exempt the profits from taxation forever rather than defer tax liability to a later time.

The explanation also still 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, it has not been suggested that she is responsible for the slowdown in the national and world economies.

Draft e-mails for readers to send to members of Congress on other proposals by Calderon ("commonwealth" party/no national party) and Resident Commissioner Anibal Acevedo Vila ("commonwealth/D) were also deleted from the Internet site.

Chairman Backs One Year 855 Tax Cut For Manufacturers

U.S. House of Representatives Ways and Means Committee Chairman Bill Thomas (R-CA) has decided to incorporate the proposal to cut the tax on CFC assets repatriated to the States for one year in the international tax bill he is developing.

The legislation will also include tax benefits for U.S. corporate activities outside the States.

Thomas agreed to the one-year CFC tax cut to win support for his draft bill. To date, he has not been able to muster a majority of the members of his committee to support it.

The committee’s second-ranking Republican, Phillip Crane (R-IL), and Ranking Democrat Charles Rangel (NY) have sponsored an alternative bill. It would cut the tax on manufacturing income from the States and U.S. territories, including Puerto Rico, by 10 percent.

Both bills are being developed partially in response to a World Trade Organization ruling that U.S. ‘foreign sales corporation’ (FSC) tax benefits are an unfair subsidy of U.S. exports. The benefits apply to income from the sale of products in foreign countries. If the benefits are not repealed soon, the European Union will be able to impose a $4 billion a year penalty on the U.S.

The Crane-Rangel bill would repeal the FSC provisions and use the $5 billion a year in increased tax revenue to fund the 10 percent manufacturing tax cut. While it understandably appeals to firms that manufacture in the States, the Thomas legislation is preferred by companies with manufacturing subsidiaries in foreign countries.

Coincidentally, Thomas and Crane and Rangel are also on opposite sides of Governor Calderon’s proposed tax exemption for CFC profits from U.S. territories. Crane and Rangel have been the proposal’s principal supporters in the House even though their FSC replacement bill is inconsistent with it. Thomas has publicly opposed it although he is developing a bill that would benefit companies earning income outside the States.

Thomas hopes to introduce his bill soon. Meanwhile, Senate Finance Committee Chairman Grassley and Ranking Democrat Baucus may delay the introduction of the ‘international’ tax bill they are developing. They had hoped to introduce the bill this month but it now appears that it will be introduced in September.

Both chairmen hope to get their committees to act on their bills soon after they are introduced. Senate Finance Committee members have said that they will consider the need to replace current tax benefits for manufacturing income from Puerto Rico that expire in 2005 when they consider a tax bill on international income.

Committee Leaders Ignore Acevedo Pleas To Keep Navy Base

After leaders of three appropriations subcommittees ignored pleas by Resident Commissioner Acevedo to keep the Navy’s Roosevelt Roads base in Ceiba, PR in operation, the House voted overwhelmingly this week for a bill that would close it in six months. The Defense Appropriations bill’s provisions would also require the base’s 8,600 acres to be sold to the highest bidder, with the proceeds going to the Navy.

Acevedo did, however, obtain a commitment from the Chairman of the Defense Appropriations Subcommittee, Jerry Lewis (R-CA), to work "with the Delegate" to see that Puerto Ricans can "maximize the potential of this potentially very valuable property."

During the debate on the bill, Lewis also said that he would work to see that the land is used in the best interests of the people of Puerto Rico. He made this later statement in rejecting Acevedo’s request for an amendment that would "make clear" that there would be an economic development package for the eastern area of Puerto Rico and that ownership of the land could be transferred to Puerto Rico’s territorial government and Ceiba’s municipal government.

The Subcommittee’s Ranking Democrat, John Murtha (D-PA), said that he would work to help with "some of the problems" for Puerto Rico caused by shutting down the base. Acevedo said the base pumped $300 million a year into Puerto Rico’s economy.

Murtha’s position was an embarrassment for Acevedo, who claimed the week before that the Pennsylvania Democrat supported his efforts to keep the base open. But in the debate, Murtha said that ‘[t]he Navy insists that it needs the . . personnel [slots] 3,000 . . . in other places."

Top Navy officers have said that the base is not worthwhile without the Vieques training range on the nearby Puerto Rican island of Vieques that was closed May 1. They include the highest ranking officer, Chief of Naval Operations Vernon Clarke, and the Commander-in-Chief of the Atlantic Fleet, Robert Natter.

Officers have also questioned the wisdom of investing in Puerto Rico in light of actions by Governor Calderon that were contrary to an agreement regarding the range between the federal and territorial governments. The agreement was negotiated by Calderon’s predecessor, Pedro Rossello (statehood/D), and then President William Clinton and many provisions were enacted into federal law. Acevedo, Calderon’s official representative in the Congress, supported her actions in violation of the agreement.

The Defense Appropriations bill provision was a surprise to Acevedo. He said he had thought that the issue would be raised when a general consolidation of U.S. military bases is considered -- an effort that is expected in 2005. He termed the legislation "arbitrary" and said it had "dismayed" him.

He also argued that the base is needed by the United States, contradicting the views of the Navy and the subcommittee leaders.

Acevedo began the debate by offering an amendment to eliminate the provision requiring closure and sale of the base from the bill. He said that he ?also was prepared to offer an amendment that would have required economic assistance for Puerto Rico in the event of the base’s closure but did not. He also withdrew the amendment to eliminate the base closure provision from the bill in the face of the opposition of Lewis and Murtha.

Although the debate had been scripted in advance, Acevedo appeared to wander from the script to the chagrin of Lewis and Murtha.

One of the arguments Acevedo made against the provision was a strong one but he did not act on it. The argument was that the provision would make substantive policy on a bill that House rules limit to allocating money. Acevedo did not, however, make a point of order against the provision, which could have led to it being stricken from the bill or a specific vote on the provision.

Acevedo also disclosed that he had asked two other Appropriations subcommittees for actions that could lead to the base being used for other purposes and that he had made a proposal for use of the base to the Federal Law Enforcement Training Center. He asked the Military Construction Appropriations Subcommittee to direct federal agencies with operations at Roosevelt Roads to audit how use of the facilities could be maximized. He also asked the Homeland Security Appropriations Subcommittee to direct agencies to study whether homeland security functions could be located at the base.

Neither subcommittee acceded to Acevedo’s request. And Acevedo did not indicate a response from the Federal Law Enforcement Center.

On the other side of the capitol, the Senate Appropriations Committee this week reported its version of the Defense Appropriations bill for the fiscal year that begins October 1. Its bill does not include a provision regarding Roosevelt Roads. The House provision, therefore, will be considered in a committee of representatives of the House and Senate named to iron out differences between the House and Senate bills.

The "Washington Update" appears weekly.

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