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Reuters News

Calderon Says Tax Incentives "Life Or Death" Issue

By Kristin Roberts

July 17, 2003
Copyright © 2003
Reuters Limited. All rights reserved. 

MIAMI, July 17 (Reuters) - Puerto Rico Gov. Sila Calderon on Thursday said federal support for new business tax incentives was a matter of "life or death" for the island's economy since as a U.S. territory it could not fully benefit from Washington's $350 billion tax cut package.

"It has an impact on the U.S. economy as well," she said.

"The more firm and solid our economy is, the more it will have an impact on the U.S. economy," she said in a telephone interview from Washington, where she is meeting with members of Congress. "We do not want our people entering the federal welfare rolls."

For more than 75 years, Puerto Rico has benefited from federal incentives for U.S. businesses operating on the island. Those tax incentives are now being phased out under a 10-year plan, which has taken a toll on Puerto Rico's job market.

The manufacturing sector, the largest component of Puerto Rico's economy, has shed 26,000 jobs, or 17 percent of the industry's work force, in the six years since the federal incentives began winding down. The apparel and electronics industries have lost 18,000 jobs.

Like U.S. states, Puerto Rico also has been strained by national economic weakness.

But unlike states, the territory could not benefit from some tax provisions of President George W. Bush's stimulus package approved by Congress in May. Because residents do not pay U.S. income tax, for example, the island felt no benefit from federal income tax reductions.

Puerto Rico, however, did receive $141.7 million in other aid under Washington's package.

The incentives Calderon is now pushing would benefit U.S. companies with U.S.-controlled foreign corporations operating outside of the United States. According to Calderon, they would make Puerto Rico more competitive with low-wage countries by offering businesses incentives to invest in the United States the surplus income earned on the island.

"This is not a competition between Puerto Rico and Arkansas or Puerto Rico and New York. This is a competition between Puerto Rico and Singapore or Malaysia," she said.

A total lack of incentives, Calderon said, would "destabilize our entire economy and social programs."

Puerto Rico was the 7th-largest trading partner of the United States in 2002 and annually buys about $16 billion in U.S. products, which helps sustain 275,000 jobs on the mainland, according to a study from PricewaterhouseCoopers.

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