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Puerto Rico Tax Plan Dies…Business Community Was Behind It

Puerto Rico Tax Plan Dies, Blurs Development View

By Kristin Roberts

October 5, 2003
Copyright © 2003
Reuters Limited. All rights reserved. 

MIAMI, Oct 5 (Reuters) - Puerto Rico's relentless push to win business tax incentives from Washington failed, leaving the island government to explain the stumble and start considering other ways to promote development, analysts said.

Wall Street analysts and economists in Puerto Rico said the governor's administration never factored the tax incentives into its official revenue projections.

But after Gov. Sila Calderon and the island's representative in Washington, Anibal Acevedo-Vila, so aggressively campaigned to win incentives under section 956 of the U.S. tax code, the administration must show it has a Plan B for development, analysts and the government opposition said.

"For three years they pushed 956 as the pillar of their economic development program," said Manuel Ortiz, campaign manager for Pedro Rossello, who is running as an opposition candidate for governor. "It didn't even get to a Senate vote."

Calderon had called the tax incentives a "life or death" issue for Puerto Rico. It would have given U.S.-controlled foreign corporations an incentive to invest in the mainland the surplus income earned from island operations.

She warned that any failure of the proposal could result in a mass migration of Puerto Ricans to the mainland in search of jobs and a large spike in federal welfare rolls.

The U.S. Senate Finance Committee, however, did not consider it last week in a mark-up session.

"It was not a good day for Puerto Rico," said Zena Polin, an advisor to Puerto Rico's secretary for commerce and economic development.

Analysts said they were not surprised.

"It would have been really positive. It would have been a windfall," said Kenneth Gear, credit analyst at Wall Street firm Standard & Poor's Ratings Service. "But I wonder how much of that life or death comment was posturing for the benefit of the federal government.

"We never viewed it that way," he said.

Moody's Investors Service also never factored any benefit from new tax incentives into its credit rating on the U.S. territory, according to analyst Timothy Blake.

Puerto Rico's top officials, including Department of Economic Development and Commerce Secretary Milton Segarra, met through Thursday and Friday evening to weigh the government's next steps. Segarra could not be reached for comment.

Many economists both in Puerto Rico and the mainland have argued the government should be focused on diversifying the economy, not winning new incentives for U.S. businesses that look, they say, like corporate welfare to Washington.

Miguel Soto-Class, director for the San Juan-based Center for the New Economy, has long contended that Puerto Rico must move into information technology industries and take advantage of its bilingual citizenry. He recently noted that Puerto Rico could have been the international banking and financial center of Latin America, a role Miami has claimed.

The full impact of the loss of federal tax incentives for manufacturers is still unclear. Puerto Rico has benefited from more than 75 years of various federal incentives that lured American businesses to the Commonwealth.

Since tax breaks began phasing out in 1996, Puerto Rico's manufacturing sector, the economy's backbone by design, has lost 30,000 jobs, or 20 percent of its work force. Most of the losses have been in low-wage industries such as textiles.

The big drug companies, such as Eli Lilly and Co. and Abbott Laboratories Inc., continue to invest to build and improve facilities along Puerto Rico's western "pharmaceutical corridor."

The government may also consider moving to a broader sales tax from an excise tax to capture more revenue from a wider taxing of purchases, S&P's Gear said.

Puerto Rico's Business Community United Behind Section 956

Representatives From The Private Sector Sign A Declaration Of Principles To Send A Strong Message To Congress

September 17, 2003
Copyright © 2003
PR Newswire Association LLC. All rights reserved. 

WASHINGTON, Sept. 17 /PRNewswire/ -- A united front of Puerto Rico's business leaders representing companies who employ more than 90% of the private sector have joined the government of the Commonwealth of Puerto Rico, the Resident Commissioner in Washington, D.C. and Puerto Rico's Secretary of Economic Development and Commerce to voice their support for the proposed amendment of Section 956 of the Internal Revenue Code, which will provide for the long-term economic future of Puerto Rico. The group is working with Congress to implement the needed stimulus for Puerto Rico's economy.

Although tax incentives currently exist to encourage U.S.-based companies to partner with Puerto Rico, this legislation will be phased out by 2005. Since the enactment of the phaseout, the Island has lost 18 percent -- or 27,000 -- of its manufacturing jobs, which is more than any state in the Union. Most of these jobs have gone to foreign countries that unlike Puerto Rico, do not adhere to U.S. environmental, labor and safety standards.

"We are joined by representatives from the business community -- who represent more than 90% of the private sector in Puerto Rico -- in a common goal to work with Congress and the President's administration in support of Section 956 and to counter the effects of the phaseout and prevent further job loss on the Island," commented Milton Segarra, Puerto Rico's Secretary of Economic Development and Commerce.

The Commonwealth's plan, which is widely supported by Puerto Rico's business community and also receives bipartisan support on the mainland, will bring benefits to both the Island and the mainland. Amending Section 956 is the Island's proposal to combat the end of these incentives and ensure that U.S. companies continue to receive tax benefits that will encourage them to maintain investment and trade relationships. As Puerto Rico's government officials continue to lobby Congress to support Section 956, they will be backed by the support of the private sector on the Island.

"Members from the business community have come to us to support us in our proposal to pass legislation that yields mutual benefits for the Puerto Rican and U.S. economies," said Anibal Acevedo-Vila, Puerto Rico's Resident Commissioner and member of Congress.

Acevedo-Vila also stressed the need to continue incentives. "A strong Puerto Rican economy and job market have significant implications over the U.S. economy as well. With a trade relationship exceeding $61 billion dollars per year, Puerto Rico is the 7th largest trading partner in the United States, generating and supporting more than 270,000 jobs on the U.S. mainland."

As the second-largest per capita consumer of U.S. products in the world, the Commonwealth of Puerto Rico is closely tied to the United States through an economic partnership that benefits both Puerto Rican and U.S. companies. If enacted, Section 956 will reinstate historic tax policy enabling Puerto Rico once again to be a competitive location for U.S. investment. This proposal will also benefit the U.S. economy by encouraging U.S. companies to invest their Puerto Rico earnings in the U.S. when they are not needed for operations in Puerto Rico.

"United as one voice, members of Puerto Rico's business community will join Puerto Rico's government officials on Capitol Hill this week and next week to voice their support for the Commonwealth's 956 proposal," said Mari Carmen Aponte, Director of the Puerto Rico Federal Affairs Administration in Washington, D.C.

Aponte continued, "Members of the business community have signed a Statement of Principles, which outlines their support for this very important tax legislation."

Puerto Rico's government officials hope that Section 956 is included in the tax reduction legislation that Congress may begin to consider next week. Congress will be considering stimulus for the Nation, but unless the Section 956 proposal is included as part of that legislation, there will be nothing included to stimulate Puerto Rico's economy.

For more information, please visit

CONTACT: Meredith Henry, +1-202-326-1715, or +1-202-841-6430, for thePuerto Rico Federal Affairs Administration; Zena Polin of the Puerto RicoIndustrial Development Company, +1-787-356-1055; or Ana Carrion of the PuertoRico Federal Affairs Administration, +1-202-955-8451

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