Prats: Acevedo Behind Rossello… Acevedo Claimed “Ally” In Senate Backs Rossello… New Kerry Tax Plan Contrary To Calderon And Acevedo’s… Another Democratic Senator Jumps On Rossello Bandwagon… McClintock Announces House Passage Of Bill In Acevedo’s Absence… Rumsfeld Report Raises Question Of Fort Buchanan’s Future

March 26, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

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Prats: Acevedo Behind Rossello

The "commonwealth" party’s candidate for resident commissioner has confided to top Democrats in Washington that his running-mate for governor is behind statehood party candidate Pedro Rossello in the party’s public opinion polls.

Senator and Puerto Rico Democratic committee chairman Roberto Prats was in the nation’s capital this week for Democratic National Committee and other meetings.

He has told top Democrats that Resident Commissioner Anibal Acevedo Vila, a nominal Democrat, is running four percent behind Rossello, an active Democrat and former governor.

Prats has confided Acevedo’s deficit in seeking support for his own candidacy versus backing for the Acevedo-Prats team. The candidate acknowledges that Acevedo being behind means that he, too, would lose if the elections were held now. He wants to generate support for his personal candidacy in the hope that he can win if Acevedo is defeated as now seems likely.

Prats is not the only top party representative spreading the word that Acevedo is behind Rossello. One of Governor Sila Calderon’s most highly paid lobbyists is quietly saying the same. Acevedo was Calderon’s hand-picked running mate and she has been Prats’ mentor.

The acknowledgements that Acevedo remains behind Rossello in the race for governor came as a poll highly regarded by Acevedo strategists was released in Puerto Rico that showed Rossello with a 12.4% lead over Acevedo.

Acevedo Claimed "Ally" In Senate Backs Rossello

News that the leading supporter in Congress of Calderon and Acevedo’s top federal priority has endorsed Rossello over Acevedo was made public Monday.

Senator John Breaux (D-LA) said that Puerto Ricans would "benefit from the respect" that Rossello "has earned" from the members of Congress "who care deeply about Puerto Rico’s future." Lauding Rossello’s "vision and experience," he suggested that electing Rossello would mean "expanding economic opportunity, creating jobs, improving education" and improving health care.

Breaux’s statement was almost as powerful a blow against Acevedo’s candidacy as the fact of his endorsement. It hit Acevedo’s campaign claims that he would be better in terms of economic growth, education, and health care.

But it was the simple fact of Breaux’s endorsement that was the biggest blow. The resident commissioner has touted Breaux as one of the closest and strongest "allies" in Congress of the Calderon-Acevedo Administration.

Acevedo has suggested that Breaux’s actions backed up his claim of a political alliance. The Louisiana senator went to Calderon’s inauguration. He championed Calderon and Acevedo’s top federal priority -- a permanent 85-100% income tax exemption for profits that Puerto Rico subsidiaries of companies based in the States organized as ‘Controlled Foreign Corporations’ (CFCs) send to the States. (Federal income tax is not owed on CFC profits until the earnings are sent to the States.) Breaux has also championed other Puerto Rico administration requests in the Senate Finance Committee.

In truth, however, Breaux has simply been a reliable supporter of Puerto Rico proposals in the Committee without regard to insular politics. For example, he backed the proposal of then President Clinton and then Governor Rossello to extend the tax credit that that companies based in the States can take for real economic contributions to Puerto Rico -- wages, capital investments, and local taxes -- federal tax code section 30A.

Breaux’s intensive experience with Puerto Rico issues -- and the two gubernatorial candidates -- led to his choosing one over the other, a step he has not taken before. It made his endorsement perhaps the most significant of the endorsements of one candidate over the other by national political figures.

The step was a major one for Breaux since one of his closest friends is one of Calderon and Acevedo’s most highly paid lobbyists in Washington.

It also was a major economic story for Puerto Rico since Rossello opposes Calderon and Acevedo’s 85-100% tax cut for U.S. corporate profits from Puerto Rico. Breaux’s choice of Rossello is yet another indication that the proposal -- which the Senate Finance Committee has rejected twice -- is dead.

According to a source involved with the issue, Breaux’s experiences with Acevedo on the issue were a key factor in his decision to support Rossello. He lost respect for Acevedo and Calderon because of their continued insistence on their amendment to section 956 of the federal tax code as late as last fall when it had become clear much earlier that the proposal had no chance of approval.

Worse in Breaux’s eyes was their opposition to him supporting an extension of section 30A, as proposed by Democratic presidential candidate Senator John Kerry (D-MA). The Finance Committee, the U.S. Treasury Department, and a majority of the U.S. House of Representatives Ways and Means Committee had all previously supported an extension, suggesting its viability. Further, Breaux had been told by major companies that they would be happy with a 30A extension although they preferred the 956 amendment.

Acevedo and Calderon opposed the 30A extension because it would suggest that Rossello had been right about Puerto Rico’s top federal economic issue and that they had been wrong about it.

Breaux also understood that Acevedo made a major mistake for Puerto Rico’s economy in asking him to propose Puerto Rico’s inclusion in a one-year only 85% tax cut for corporate income sent to the States by CFCs. The one-year tax cut is designed to shift investments from CFC locations to the States. Acevedo’s proposal, which was accepted by the Senate Finance Committee at Breaux’s request, would encourage companies based in the States to take funds out of Puerto Rico.

New Kerry Tax Plan Contrary To Calderon And Acevedo’s

Democratic presidential candidate Kerry Friday proposed a major plan to shift factory jobs that have gone overseas back to the U.S. that is contrary to Calderon and Acevedo’s 956 amendment. The plan is, however, consistent with Kerry’s earlier proposals to encourage manufacturing in Puerto Rico.

Kerry proposed ending the ‘deferral’ of taxation on income that companies based in the States earn outside of the States unless the plants are making products that will be used outside the States. His proposal would tax income from manufacturing products for the U.S. market outside the States when it is earned rather than when it is brought into the States. The tax would be phased-in.

By contrast, Calderon and Acevedo’s 956 amendment is based on deferral of taxation of CFC profits. It would enable CFC profits from manufacturing for the States to avoid 85-100% of the taxes due on ‘repatriated’ income from CFCs brought into the States as long as the profits are from manufacturing in Puerto Rico.

Kerry reportedly would, however, cut the 35% tax rate on CFC income sent to the States to 10% for one year only. The purpose is to encourage companies to take the maximum amount of CFC assets out of CFC locations as quickly as possible and reinvest the funds in the States. His proposal is similar to the one-year only 85% tax cut on profits ‘repatriated’ from CFCs approved by the Senate Finance Committee that Acevedo mistakenly asked to have applied to Puerto Rico.

Kerry would use the revenue generated by taxing CFC profits when earned to cut taxes for business activity in the U.S.

  • He would reduce the corporate tax rate, five percent, or from 35% to 33.25% for income from the U.S. The proposal is similar to another provision of the Senate Finance Committee corporate tax bill that included the one-year 85% repatriated CFC profits tax cut. The bill’s provision would cut the corporate tax rate on income from domestic manufacturing nine percent to about 32%. Kerry convinced the Committee to apply the tax cut to manufacturing in Puerto Rico, a proposal consistent with Rossello’s approach to federal tax policy. Acevedo reacted by fuming, "That’s not what we want."????
  • Kerry would also exempt companies from having to pay Social Security and Medicare taxes on new U.S. workers that they hire. This proposal would include small businesses as well as large manufacturers.???
  • Small businesses would also be able to write off 25% of the health care insurance premiums that they pay for their employees.

The latter two proposals take an approach to economic assistance consistent with the 30A credit. Companies get tax breaks based on employ rather than profits.

Kerry’s plan is intended to create "10 million new jobs for America." The country has lost 2.7 million manufacturing jobs over the past three years.

Meanwhile, the Senate Wednesday failed to pass the Finance Committee’s corporate tax bill this week for the second time. The bill has majority support but passage has been delayed by Democratic efforts to add an overtime pay provision to it that Republican leaders oppose.

Another Democratic Senator Jumps On Rossello Bandwagon

Another Democratic member of the U.S. Senate Thursday endorsed Rossello in preference to Acevedo -- Puerto Rico’s ‘Democrat’ in Congress.

Ben Nelson was governor of Nebraska most of the years that Rossello was governor of Puerto Rico. They became particularly close when Rossello was a highly regarded chairman of the Democratic Governors Association.

In a statement, Nelson recalled Rossello’s record of "economic prosperity . . . access to health care for all Puerto Ricans" and "great strides in fighting crime."

He also cited Rossello’s proposed "investments in health care and education, and . . . plan to create high-paying jobs."

McClintock Announces House Passage Of Bill In Acevedo’s Absence

The U.S. House of Representatives Wednesday passed a bill providing that quarter-dollar coins minted in 2009 will have on their back side "designs emblematic of the District of Columbia and the territories" of the U.S. including Puerto Rico.

The bill would extend a program for the States to the nation’s capital and the U.S.’ five unincorporated territorial possessions.

News of the House’s approval of the bill was released by Puerto Rico Senate statehood party leader Kenneth McClintock. The territorial legislator, who closely follows federal issues concerning Puerto Rico, was in town because he is Puerto Rico’s "Democratic National Committeeman."

Resident Commissioner Acevedo, by contrast, was absent from Washington when the bill was debated and voted on by the House. The "Delegates" to the House from the three territories that have delegates all participated in the debate, however.

Rumsfeld Report Raises Question Of Fort Buchanan’s Future

Defense Secretary Donald Rumsfeld Tuesday certified to the Congress that the federal government should decide on a comprehensive regime of military base closings in 2005.

A 2003 law authorizes a process for a major closing of bases. The law required a certification from the secretary of Defense that the closings would be in the interests of national security. A report from Rumsfeld to the Congress included the unanimous recommendation of the U.S. military’s top officers in favor of the closings.

Rumsfeld’s report stated that Army bases were in the greatest need of closings or consolidations. It held that the Army has 29% more base space than it needs. Navy and the Marine Corps facilities were said to be 21% excess to needs. Air Forces bases were 24% over capacity.

Cutting excess base facilities by 20% would save $8 billion annually, the Congress was told.

The report renews questions about the future of Puerto Rico’s sole surviving substantial U.S. military base, Army Fort Buchanan in San Juan. Ft. Buchanan has been a candidate for closing in the past.

Under the 2003 law, the president and the Congress are to name a Base Realignment and Closure Commission early next year. The secretary of Defense is required to propose closures and realignments of specific bases in May 2005.

The "Washington Update" appears weekly.

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