Calderon Reps Meet On Getting Tax Breaks For Companies From The States… Congress’ Year Begins Jan. 20 With Budget Vote And Bush Agenda

January 9, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

. .. Calderon Reps Meet On Getting Tax Breaks For Companies From The States

Representatives of Puerto Rico Governor Sila Calderon ("commonwealth" party) met in Washington January 9th to discuss strategy regarding her proposed 85-100% federal tax breaks for profits that companies based in the States receive from subsidiaries in U.S. territories organized as ‘foreign’ corporations.

Calderon’s Economic Development and Commerce Secretary, Milton Segarra, chaired the meeting at the territorial government’s office in Washington. Calderon, who was originally scheduled to be present, did not attend. Most of the attendees were lobbyists and consultants who together have been paid millions of dollars a year for almost three years to promote the amendment to section 956 of the U.S. Internal Revenue Code (IRC).

However, although the plan has obtained support from a few important Members of the Congress on tax issues, it has been rejected by the federal government’s key power centers on the issues: the Senate Finance Committee; Chairman William Thomas (R-CA) of the House of Representatives Ways and Means Committee; the Treasury Department; and the White House.

And most of these rejections took place when Calderon and her representatives, including Resident Commissioner Anibal Acevedo Vila, first presented the proposal in 2001 -- before most of the tens of millions of dollars were spent on lobbying for the proposal.

A slight exception occurred in the case of the Senate Finance Committee. Then chairman and now top-ranking Democrat Max Baucus (D-MT) rejected the proposal in 2001 and current Chairman Charles Grassley (R-IA) declined including the proposal in major tax legislation when he took over the Committee’s top spot. The full Committee itself did not consider the proposal until 2003.

When Committee approval was first formally proposed last year by Senator John Breaux, the Louisiana Democrat said it was clear that the amendment did not have enough support to pass and withdrew the request. The proposal was actually voted down when he sought approval a few months later.

Misleading Calderon lobbying claims regarding Puerto Rico’s economic situation and the amendment, Breaux’s efforts, and alternative proposals to help Puerto Ricans economically by Senators John Kerry (D-MA) and Bob Graham (D-FL) prompted Grassley and Baucus to ask the Congress’ investigative arm, the General Accounting Office (GAO), for a comprehensive report on Puerto Rico tax and social program issues. Additionally, the Congress’ Joint Committee on Taxation staff was asked for a report on the various options for helping Puerto Ricans economically, considering all of the proposals that have been made and the GAO’s findings.

In addition to Calderon’s proposed 956 amendment, the proposals include extending sec. 30A past 2005, which Kerry proposed, and extending three major social programs to Puerto Rico, which Graham proposed. The programs that Graham proposed provide "Child Credit" grants to low-income workers with one child or two children (grants to low-income workers in Puerto Rico with three or more children have already been extended), "Earned Income Credit" grants to other low-income workers, and "Supplemental Security Income" aid to the needy aged, blind, and disabled.

Another idea that is expected to be covered by the reports would extend Empowerment and Enterprise Zones, which are economic development incentives for underdeveloped and distressed communities, to Puerto Rico.

The reports are due early this summer. This timeframe and the Congress’ schedule (see report below) are expected to leave inadequate time for congressional approval this year of a new, special economic assistance program for Puerto Rico as Calderon wants.

Instead, it is more likely that the Finance Committee will take any action based on the reports in early 2005 -- when Puerto Rico has a new administration. The two top contenders to lead the territorial government are Acevedo and Pedro Rossello (statehood/D), a critic of the 956 amendment and a supporter of extending 30A and the social programs that Graham proposed. Rossello is the favorite in the race, according to public opinion polls.

In addition, the statehood party candidate for resident commissioner -- who is expected to win if Rossello does -- Republican National Committee Member Luis Fortuno has advocated extending Enterprise Zone economic benefits to Puerto Rico. Fortuno’s view is expected to be particularly important since Republicans are strongly favored to retain control of the House and a majority in the Senate in this year’s elections and President Bush seems more likely to be re-elected than be replaced by a Democrat. Thomas has already suggested support for Fortuno’s ideas for helping Puerto Rico economically while continuing to make it clear that he opposes the 956 amendment and Calderon and Acevedo’s efforts.

Since the current special economic assistance tax incentives related to Puerto Rico, 30a and sec. 936, do not expire until the end of 2005, the Calderon proposal would not take effect until 2006, and Rossello favors different economic assistance than Calderon and Acevedo do, the likely 2005 timetable for action on any Puerto Rico economic needs is considered to be reasonable and not a real delay.

Calderon and Acevedo have acknowledged that it is unlikely that the Congress will pass the 956 amendment this year but Calderon has said she will continue to try. Additionally, Acevedo and Segarra have expressed hope that the GAO and Joint Tax Committee reports will lead to passage. This expectation is curious in light of some of the issues that Grassley and Baucus asked that the reports address. Experts expect the information to expose the flaws in the 956 amendment that caused federal tax policy officials to oppose it.

One of the objectives on Segarra’s agenda in meeting with the Calderon Administration’s economic lobbyists and consultants in Washington this past week was how to convince the GAO and the Joint Tax Committee staff that the amendment is a good idea.

Congress’ Year Begins Jan. 20 With Budget Vote And Bush Agenda

Most federal agencies resumed normal operations this week after the Christmas and New Year holidays, but the congressional year will not really begin until January 20th.

Both houses of the U.S. Congress are scheduled to have their first meeting of the 108th Congress’ Second Session on the 20th. There are two big items on that day’s agenda: the Senate is to vote on legislation to provide funding for much of the federal government for the rest of Fiscal Year 2004 -- which began last October 1st -- and President Bush is to deliver his State of the Union Address to a joint session of the Congress.

The appropriations bill that the Senate is to vote on is a compromise on funding issues worked out by representatives of the Senate and the House of Representatives in a ‘conference committee’ early in December. It would fund the Departments of Agriculture, Commerce, Justice, State, Labor, Health and Human Services, Education, Transportation, Treasury, Veterans Affairs, and Housing and Urban Development, as well as assistance to the District of Columbia and foreign countries and other programs.

Almost all of the programs that would be funded by the bill have been operating since October 1st with short-term funding appropriated at the Fiscal Year 2003 levels.

The House passed the ‘conference report’ December 8th, but the top ranking Democrat on the Senate Appropriations Committee, Robert Byrd (D-WV), blocked Senate approval of the compromise on the massive spending bill.

If Byrd and others can block approval of the legislation on January 20th, there will have to be new negotiations on the funding or a decision to simply continue funding at 2003 levels until Fiscal Year 2005 begins on October 1, 2004.

Democrats plan to "bookend" Bush’s State of the Union Address "between two doses of reality." They will have a pre-Address presentation January 16th, as well as the traditional response to the President immediately following the Address.

The earlier Democratic presentation will anticipate the President’s remarks. It will also make proposals. One is expected to be a tax credit for manufacturing in the States.

The broad agenda that the President will lay out in his Address will be fleshed out when his 2005 budget is sent to the Congress. It is planned for the spending proposal to be submitted to the Congress on February 2nd. Little is expected to be done in the Congress before that time.

Expectations for legislation this Session of the Congress are relatively modest because of the November elections. Because of this and the desire of Members running for re-election to have as much time as possible to campaign, Senate Majority Leader Bill Frist (R-TN) announced a schedule that includes a lot of breaks. The Senate would not be in session February 14-22, March 13-21, April 10-19, May 22-31, June 26-July 5, July 24-September 6, and, probably, additional days around these breaks. The session would adjourn by October 1st.

The "Washington Update" appears weekly.

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