National Union Leaders From Puerto Rico Get Dean To Talk To Acevedo... Income Tax Cuts For Manufacturers Unlikely To Pass This Year

November 14, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

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National Union Leaders From Puerto Rico Get Dean To Talk To Acevedo

The frontrunner for the Democratic presidential nomination, former Vermont Governor Howard Dean, spoke with Puerto Rico Resident Commissioner Anibal Acevedo Vila, the gubernatorial candidate of the territory’s "commonwealth" party, by telephone Monday night.

The call came after months of efforts by Acevedo to speak with Dean, who developed a close friendship with the leading candidate for the governorship, former Governor Pedro Rossello (statehood), when the two were leaders of the Democratic Governors Association.

At the time, Dean welcomed the idea of Puerto Rico becoming a State of the United States. Acevedo has privately suggested that he would help Dean win most of Puerto Rico’s delegates to the convention that will select the Democratic presidential nominee if Dean would support "commonwealth."

Under Acevedo’s vision of "commonwealth," the territory would be recognized as a nation in a permanent union with the U.S. Puerto Rico would gain the powers to determine the application of federal laws and enter into commercial agreements with foreign countries. The U.S. would continue to grant citizenship to people born in Puerto Rico and all assistance now provided Puerto Ricans.

Dean did not support "commonwealth" during the call, however. Instead, he reportedly supported Puerto Ricans choosing the territory’s future political status. This position is not inconsistent with his past kind words about statehood -- which were premised on Puerto Ricans choosing the status.

Acevedo took comfort in Dean allegedly saying that he would not intervene in the gubernatorial race and that he would work with Acevedo if they both were elected next year. (Acevedo did not explain how they could not work together if they both are elected.)

A Dean pledge not to takes sides in favor of his friend Rossello eliminates a worry of Acevedo’s. The Dean/Rossello friendship is such that Dean initiated a call to Rossello before he called Acevedo.

Dean had also reached out to another statehooder who is a leading Democrat in Puerto Rico: Senate Minority Leader Kenneth McClintock. McClintock is an active Member of the Democratic National Committee and a former president of the Council of State Governments.

Acevedo initially sought to get to Dean through consultants to the territorial government and his campaign who are friendly with Dean. Dean called him, however, in connection with obtaining endorsements Wednesday afternoon from the two largest unions in the AFL-CIO, the nation’s largest labor organization.

The endorsements by the 1.6 million member Service Employees International Union (SEIU) and the 1.5 million member American Federation of State, County, and Municipal Employees (AFSCME) were a major coup for Dean.

They surprised political observers as well as other presidential campaigns. They also gave Dean a big boost over his rivals, especially Representative Richard Gephardt (MO).

Labor unions provide much of the workforce and financial support for Democratic campaigns. Gephardt, already endorsed by 20 unions, expected AFSCME’s support and worked for the SEIU’s.

A New York labor leader who is originally from Puerto Rico was a driving force behind the SEIU endorsement -- and the call to Acevedo. Dennis Rivera, president of the union’s largest ‘local’, in New York City, and one of the union’s national vice presidents, was even credited by a Gephardt associate with swinging the SEIU to Dean.

Gephardt had courted Rivera but Dean worked harder for Rivera’s support. He reportedly met with Rivera several times and spoke on the phone with him at least 10 times.

Rivera is a Puerto Rico nationalist who has provided critical national political support for Puerto Rico’s current governor, Sila Calderon, who, like Acevedo, is a member of the "commonwealth" party.

Interestingly, the three have supported Republicans as well as Democrats for office in the States. Calderon has suggested that residents of the States of Puerto Rican origin vote for President Bush’s re-election. Last year, she also supported the re-election of his brother as governor of Florida and campaigned for the re-election of New York Governor George Pataki, another Republican. She has declined to associate with either national political party.

Rivera provided major support for Pataki’s re-election after Pataki gave $2 billion in New York State labor concessions sought by Rivera. At the time, Rivera also obtained Pataki’s support of Calderon in dealings with the Bush Administration. Rivera remains a force in Democratic Party politics, however, because of his union, even though he resigned from the Democratic National Committee last year.

Acevedo, a Democratic Party member, declined to support the Democrats running against Governors Pataki and Bush last year.

Ironically, on the day that the SEIU announced its endorsement of Dean – which was largely attributable to Rivera’s efforts -- the Federal Elections Commission slapped large fines on the SEIU for campaign finance law violations -- most of which were committed by Rivera’s local. $187,500 of the $262,500 in penalties were reportedly directly attributable to Rivera’s organization.

Another national union figure with roots in Puerto Rico also played a role in getting Dean to finally call Acevedo. Jose La Luz is a regional organizing director of AFSCME, the other large union that endorsed Dean Wednesday.

Ironically, Rossello is responsible for AFSCME obtaining its largest single organizing opportunity ever -- Puerto Rico’s territorial government -- and La Luz was the primary organizer of AFSCME in the territory. Further, AFSCME was so appreciative of Rossello’s efforts that national union President Gerald McEntee said at the time that Rossello was the best governor he had ever worked with.

La Luz works closely with McEntee, who is primarily responsible for his union’s endorsement of Dean.

AFSCME has also supported Calderon/Acevedo Administration initiatives with the federal government unrelated to federal labor policies. The support reportedly was given in return for Calderon’s agreement to local labor concessions to the union.

National SEIU President Andrew Stern has also supported Calderon/Acevedo non-union federal proposals. Rivera is known to be responsible.

Income Tax Cuts For Manufacturers Unlikely To Pass This Year

Legislation to grant tax incentives for manufacturing in U.S. areas -- including Puerto Rico and the other U.S. territories -- and for ‘repatriating’ assets of foreign subsidiaries of U.S. companies is no longer expected to pass the Congress this year. Disputes over the bill to reform Medicare, the health insurance program for older people, as well as the manufacturing tax bill are the reason.

The manufacturing tax bill was earlier expected to pass this year because it is needed to avoid $4 billion in trade penalties that the World Trade Organization (WTO) has authorized the European Union (EU) to impose on the U.S. early next year.

The penalties were authorized because current special tax cuts for foreign sales subsidiaries of U.S. companies are considered an impermissible subsidy of exports under WTO rules.

The bill would replace those tax cuts with a permanent tax cut on income from manufacturing in U.S. areas and a very short-term tax cut on earnings that U.S. companies in the States take from their foreign subsidiaries.

Both replacement provisions would affect manufacturing in Puerto Rico but one would affect it negatively while the other would affect it positively. Curiously, Resident Commissioner Acevedo Vila sought the provision that would affect Puerto Rico’s economy negatively and criticized the provision that is in the islands’ economy’s favor.

The negative provision would cut the 35% federal corporate income tax rate to 5.25% in the case of earnings that companies receive from "foreign" subsidiaries over a period that is expected to be six months. Companies based in the States can have "foreign" subsidiaries in U.S. territories as well as foreign countries. Many manufacturers with plants in Puerto Rico do so because income from the plants is not taxed by the federal government until it is sent to the States.

Cutting the 35% tax on this income to 5.25% for a short time period is intended to encourage companies to take as much money as possible out of their foreign subsidiaries. Official estimates are that hundreds of billions of dollars will be repatriated from areas that include Puerto Rico as well as foreign countries.

The provision of the bill that is favorable to Puerto Rico would cut the 35% tax to 32% in the case of manufacturing income from U.S. areas.

Acevedo criticized that provision because he wanted the tax rate on income from manufacturing in Puerto Rico to be reduced to between 0% and 5.25%, as proposed by Governor Calderon.

The Calderon/Acevedo proposal has been rejected by the Senate Finance Committee and the chairman of the House of Representatives’ Ways and Means Committee, Bill Thomas (R-CA), as well as the U.S. Treasury Department and the Bush White House.

The manufacturing tax cut legislation has passed both congressional tax committees but it is being held up over a dispute in the House -- primarily between Republicans -- over the exact nature of the replacement tax benefits.

The current session of the Congress is now scheduled to end November 21st. Prospects for a House-Senate agreement on the Medicare reform legislation by then are uncertain. Although negotiators for both houses of the Congress have resolved most differences on the bill, they were still divided on a few of the greatest issues as of this writing on November 14th. There are also partisan divisions over the legislation.

If the bill is not agreed to by the end of next week, the congressional session may resume in December.

The legislation includes a number of benefits for Puerto Ricans. They would get its outpatient prescription drug subsidy. The rate Medicare pays for inpatient hospital services would be increased from being 50% based on rates that apply everywhere else in the nation and 50% local costs to 75% national rates and 25% local costs.

Both provisions were suggested by then President Clinton in response to requests from then Resident Commissioner Carlos Romero Barcelo (statehood/D) and Governor Rossello as well as the Puerto Rico Hospital Association.

The "Washington Update" appears weekly.

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