|New Tax Bill Includes Disinvestment Plan and Contradicts Governors
U.S. House of Representatives Ways and Means Committee Chairman Bill Thomas (R-CA) Friday introduced a major tax bill that includes a powerful incentive for companies in the States to quickly move earnings from their subsidiaries outside the States into investments in the States.
The provision would cut the 35 percent corporate income tax rate for a six months period by 80 percent for monies repatriated from Controlled Foreign Corporations (CFCs) and invested in the States. The CFCs presumably include CFCs in Puerto Rico and other territories of the U.S.
The plan superficially resembles Puerto Rico Governor Sila Calderons ("commonwealth" party/no national party) top federal priority but there is a critical difference between the two proposals and each would have the opposite effect. Calderons would cut the tax on CFC profits repatriated from U.S. territories only 85, 90, or 100 percent but on a permanent basis rather than for just six months. It is intended to encourage companies in the States to invest in Puerto Rico.
Thomas proposal would encourage massive disinvestment from CFCs. He said that the Congress Joint Committee on Taxation and a private firm estimated that his proposal would encourage companies to repatriate between $100 billion and $350 billion from their CFCs.
The Thomas plan is a six-month version of identically-intended House and Senate bills for a one-year repatriated CFC earnings tax cut of 85 percent.
Puerto Rico Resident Commissioner Anibal Acevedo Vila ("commonwealth"/D) sought the inclusion of income from CFCs in Puerto Rico in the one-year proposal when it was considered in May by the Senate Finance Committee. He saw it as a first year of the Calderon proposal, apparently not understanding that its premise was that it not be extended and that it would encourage companies to take substantial funds out of Puerto Rico.
In releasing the bill, Thomas announced that it was supported by a number of large companies, including many with operations in Puerto Rico and several that had supported Calderons very different proposal.
Senate Finance Committee Member Orrin Hatch (R-UT) was said to be prepared to introduce a similar Senate companion bill to the Thomas legislation. Hatchs sponsorship of a six-month tax cut for repatriated CFC income would be interesting because he was one of the two Senate sponsors of Calderons proposal in the last Congress.
Thomas has publicly opposed the Calderon proposal, which would amend Internal Revenue Code Section 956. His own bill, however, amends section 956 but not as Calderon wanted.
Thomas bill will also reportedly include a three percent permanent cut in the corporate income tax rate for companies with less than $10 million a year in taxable income. This would cut the rate from 35 to 32 percent.
This provision is similar to a proposal by the second-ranking Republican and the top ranking Democrat on the Ways and Means Committee, Representatives Phillip Crane (R-IL) and Charles Rangel (NY), respectively, and the Chairman of the Small Business Committee Donald Manzullo (R-NY). Their legislation would cut the tax rate on manufacturing income from all U.S. areas -- including the U.S. territories -- to 31.5 percent.
Crane and Rangels sponsorship of the tax cut for manufacturing income from all U.S. areas was interesting because the two are also the primary House sponsors of Calderons proposal for a much greater tax cut for income from U.S. territories only. The two proposals are obviously inconsistent, although Acevedo Vila has said that they are "not incompatible." He has not, however, explained how the two proposals could work together or the viability of getting the Congress to approve a much greater tax break for manufacturing income from Puerto Rico in a bill that provides a much lesser tax break for manufacturing income from the States.
The primary incentive for all three bills is to replace Foreign Sales Corporations (FSC) tax benefits for special subsidiaries that U.S. companies establish for export sales only. The World Trade Organization has found the $5 billion a year in tax breaks to be an unfair subsidy of exports and authorized the European Union to impose $4 billion in trade penalties on U.S. goods. Legislation on the subject is, therefore, considered "must pass" legislation.
Senate Finance Committee Chairman Charles Grassley (R-IA) and senior Democrat Max Baucus (MT) are drafting another international tax bill. Several Members of the Finance Committee agreed in May that Calderons proposal should be considered in the context of that legislation but Grassley and Baucus are not expected to include it in their proposal. Baucus has publicly opposed the 956 amendment, Grassley declined a proposal from Senator Trent Lott (R-MS) to include it in the bill that the Committee considered in May, and amendment supporter and Committee Member John Breaux (D-LA) recognized in May that it lacked majority support in the Committee.
Committee aides also said recently that they are aware of no greater support for the proposal but Calderon and Acevedo last week lobbied a number of leading Members of the Congress for its approval and said the meetings were "positive." They declined, however, to identify any additional backing for the bill.
In any case, a Committee staffer expects the proposal to be offered by a senator when the Committee considers the Grassley/Baucus bill, probably in September. Pharmaceutical giant Pfizer has reportedly lobbied hard for the amendment, although Pfizer is one of the companies supporting the Thomas bill.
The Ways and Means Committee is also expected to consider the Thomas bill in September after the Congress summer recess, which is scheduled to start Friday in the House and next week in the Senate.
Whether the Calderon amendment will be offered in the House committee or not appears to be more uncertain. A key aide to sponsor Rangel said last week that Thomas bill would provide a major clue to the amendments fate since Thomas has routinely ignored senior Democrat Rangels proposals.
But Thomas may now give Rangel proposals more consideration. He was forced by widespread criticism inside and outside the House to publicly apologize to Committee Democrats this week for trying to evict them last week from a Committee room where they gathered after walking out of a Committee meeting in protest of his refusal to consider Democratic proposals.
Congressmen Determined to Close Puerto Rico Navy Base
Three influential Republicans in the Congress made it clear this week that they are determined to have the Roosevelt Roads Naval Station in Ceiba, Puerto Rico closed.
The Defense Appropriations bill for the fiscal year that begins October 1 passed by the House of Representatives would require the Navy to close the base within six months and sell the property to the highest bidder, with the proceeds being retained by the Navy. An official source puts the value of the property at $1.7 billion, although it has been estimated that a necessary environmental clean-up of the facility would cost the Navy $300 million.
There is no provision regarding the 8,600 acre base in the Senate version of the bill. The differences between the two versions will be worked out by a conference of representatives of each House of the Congress that is expected to meet in September.
Nineteen senators have been named conferees. House conferees were not named as of the time of this writing. Under congressional procedures on House-Senate conferences to resolve differences on legislation, the conferees of each House take a uniform position in the conference even if they are divided among themselves.
The key conferee is likely to be the chairman of the Senate delegation, Ted Stevens (R-AK). Stevens is Chairman of the full Senate Appropriations Committee as well as Chairman of the Committees Defense Subcommittee.
His key counterpart in the House is expected to be Defense Appropriations Subcommittee Chairman Jerry Lewis (R-CA), the author of the House provision regarding Roosevelt Roads.
One of the other two principal conferees will be Senate Daniel K Inouye (D-HI), the Senior Democrat on the Senate Subcommittee. The other is expected to be Representative John Murtha (D-PA), the senior Democrat on the House Subcommittee.
Lewis was one of the three Republicans who spoke out on the issue this week in interviews with the Washington Times. Noting that many in Puerto Rico "would like to have the money" that the base has meant to the territory, he said "but we have other priorities." Roosevelt Roads, the largest military facility in Puerto Rico and the largest Navy base outside the States, is said to have contributed as much as $300 million a year to Puerto Ricos economy.
Top Navy officers have said that the base is not needed since the Atlantic Fleets training range centered on the nearby Puerto Rican island of Vieques was closed May 1st. The range was the primary location for U.S. East Coast-based Navy and Marine Corps forces to practice combat amphibious invasions. It was also the heart of a training complex that extended over thousands of miles of ocean. Supporting the training has been Roosevelt Roads main function.
Lewis also said that "[m]any of the protesting organizations had an idea" that the base could close if the Vieques range were closed "but probably not so quickly." He had been told by Resident Commissioner Acevedo Vila that Acevedo knew that the continued existence of the base could be an issue when a Base Realignment and Closure Commission (BRAC) considers the consolidation of all U.S. military facilities in 2005 but did not expect that the base could be closed beforehand.
The early closure was informally requested by Navy officials who have said that continued spending on the base is unwarranted without the Vieques range. They have also felt it unwise to "invest" more funds and activity in Puerto Rico in light of actions by the administration of Governor Sila Calderon that violated a Federal-Commonwealth agreement regarding the range. The agreement was negotiated in 2000 by Calderons predecessor, Pedro Rossello (statehood/D). Rossello and Acevedo are now the leading candidates to succeed Calderon.
Acevedo and Calderon are lobbying to keep the Roosevelt Roads base as a Navy complex even though most personnel and functions have already been removed from the base and it would, therefore, contribute much less to the territorial economy. But House Defense Appropriations Committee Member Randy "Duke" Cunningham (R-CA), a war hero, agrees with Lewis and the Navy that "[i]f you take the mission away from Vieques, you dont need that base. Sometimes you get what you wish for."
Senate Armed Services Committee Member Jim Inhofe (R-OK) also agrees. He had proposed an amendment to the Senate bill that was identical to the House provision but did not pursue it when fellow Committee Member Bill Nelson (D-FL) proposed a counter amendment that would have called for the issue to be resolved through the BRAC process in 2005.
Inhofe said this week that he expected the House provision to be approved by the conference. He also said that he regrets the cost to the people of Puerto Rico but added that they were "lied to by their politicians" and protesters against the range. "Thats their problem" he added, saying that "[t]he time for [Puerto Rican politicians and range protesters] to be concerned [about the bases closure] was when they were kicking us off our range. I told them this would happen."
He went on to say that the territorial government "used every unethical and illegal means to kick us off that live range."
Referring to training with explosives formerly conducted at the range, Inhofe reiterated his contention that the ranges closure has resulted in training that is not as good -- because elements are divided among different locations -- said the training is now more costly.
Acevedo and Calderon have offered second and third choices for the base. Their first alternative is a request to have other federal agencies -- particularly law enforcement agencies -- occupy space at the base that the Navy no longer uses.
Their third choice accepts the closure of the base but with the land transferred to the territorial and municipal governments and an unspecified economic aid package for Puerto Ricos eastern region.
Lewis and Murtha, his co-author of the closure provision, have indicated a willingness to explore measures to reduce the economic impact of the bases closure on Puerto Rico. But Cunningham this week said he opposed the idea. "They dont want us there" he said, referring to Puerto Ricans and Vieques and recalling President Bushs statement on the issue. Sending an even stronger and more fundamental message to Puerto Ricans he added, "They had a chance to become a State and declined. They dont pay taxes."
Hispanic Caucus Seeks Aid for Vieques "Victims" Unaware of Studies
Members of the House Democratic Hispanic Caucus Thursday asked the Acting Secretary of the Navy to compensate some 6,000 residents of Vieques who have filed health and property loss claims with his office related to training at the now-closed range on Vieques.
In a letter and a news conference in which Caucus Members who are also Members of the House Armed Services Committee participated, it was alleged that there was "sufficient evidence" that metals and chemicals used in the training were killing Vieques residents through cancer, diabetes, and other diseases. Tests by scientists from Puerto Rico and universities in the States were said to show that Vieques residents continue to be exposed to dangerous levels of the metals and chemicals.
The Members of the Congress curiously, however, did not ask for the Viequense to be removed from the allegedly dangerous environment. They did, however, "demand" a meeting with Acting Secretary Hansford Johnson to discuss his "plans" for the compensation.
A spokesperson for the Caucus was unaware that several studies by federal health and environmental agencies specifically funded by the Congress and directed by then President Clinton in agreement with then Governor Rossello found no danger for humans in the Vieques environment related to the Navy training. The aide referred questions on the issue to Resident Commissioner Acevedo Vila, who was neither present nor in Washington, DC Thursday.
Acevedo and Governor Calderon have repeatedly contended that Navy training on Vieques has seriously harmed the health of the islands residents and used the contention as justification for violating the Commonwealths agreement with the federal government regarding the range. It is contentions such as this that Inhofe was referring to in saying that the territorial government used "unethical . . . means" in trying to end training at the range and that the Roosevelt Roads base should now be closed.
The claims that Vieques residents have sent to Johnsons office were organized by a lawyer from Mississippi who is known for filing those kinds of claims for compensation.
The "Washington Update" appears weekly.