Kerry Proposes Democracy And More Equal Aid For Puerto Ricans… Acevedo Leads "Commonwealth" Campaign In States Against Kerry… House Passes Acevedo Puerto Rico Disinvestment Incentive

June 18, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

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Kerry Proposes Democracy And More Equal Aid For Puerto Ricans

The presumed Democratic candidate for president of the United States, Senator John Kerry (D-MA), released a comprehensive policy regarding Puerto Rico June 12th.

The policy pledges specific actions to enable the territory to attain a status that is democratic at the national government level. It also proposes financial and medical assistance for low-income Puerto Ricans and measures for Puerto Rico’s economic development. Kerry also said he would focus on Puerto Rico issues and consider the territory in developing policies of national scope.

A statement on the policy also recalls the efforts of both Kerry and former President Bill Clinton in these areas and it sharply criticizes President George Bush’s lack of action on Puerto Rico issues.

Political Status:

Kerry’s statement points out that Puerto Rico remains an unincorporated territory with: its ultimate status undetermined; Puerto Ricans without voting representation in their national government; and unequal treatment in federal programs.

The document refers to a bill that Kerry sponsored in 1998 with 15 other senators that would have authorized Puerto Ricans to choose whether the Commonwealth would become a sovereign nation -- either fully independent from or freely associated with the U.S. -- or a U.S. State. The choice would have been made in periodic referenda until one of the nationhood or U.S. statehood options was chosen.

The statement also notes that Clinton had established the President’s Task Force on Puerto Rico’s Status, hitting Bush for waiting nearly three years to activate the Task Force and delaying its reports until after this year’s election. Bush is also criticized for failing to spend $2.5 million appropriated to his office for public education and a choice in Puerto Rico as to federally approved status proposals.

Kerry’s statement pledges him to work to authorize Puerto Ricans to choose a status that includes voting representation in their national government from among all such options acceptable to the U.S. that they want to consider. Tit stressed that Kerry would not take sides among the options.

The pledge, however, clearly excludes the proposal of the current leaders of Puerto Rico’s "commonwealth" party that the Commonwealth be recognized as a nation to which the U.S. is bound with the powers to veto federal laws and enter into binding agreements with foreign governments.

Kerry also said he would propose $2.5 million be spent yearly for status education and referenda costs in Puerto Rico and he would activate the President’s Status Task Force from the beginning of his administration.

Economic Aid

Noting that nearly half the population of Puerto Rico lives below the federal poverty level, Kerry’s statement listed four measures he has taken to help.

  • Proposing an extension of the tax credit that companies in the States can take for wages, investments, and taxes in Puerto Rico, Internal Revenue Code Section 30A (IRC), that expires at the end of 2005.
  • Winning Senate approval of a nine percent tax cut for manufacturing income from the territory.
  • Obtaining enactment of legislation that closes half the gap between Medicare payments for hospitalization costs in Puerto Rico.
  • Obtaining enactment of an increase in Medicaid funding to pay for medicine for low-income elderly and disabled individuals in the territory.

The policy also noted that Bush had proposed no initiatives to help Puerto Rico’s needy and economic growth and that Clinton had proposed both.

It pointed out that low-income workers in Puerto Rico with one child or two children do not receive Child Credit payroll tax refunds and all low-income workers do not receive Earn Income Credit payroll tax refunds. Additionally, the territory receives lesser funding than the States in Medicaid and the Children’s Health Insurance Program. In the statement, Kerry said he would work to treat Puerto Ricans equally with other citizens in such programs.

The statement also recognized that the 30A credit and a federal tax credit for U.S. corporate income attributed to Puerto Rico, IRC sec. 936, expire as of 2006 and that Puerto Rico is not included in national programs for underdeveloped areas, such as Enterprise and Empowerment Zones. It said that Kerry would propose incentives for economic activity that are based on economic contributions to Puerto Rico (vs. benefits to companies based in the States).

White House Attention

Kerry charged that Bush had virtually ignored Puerto Rico’s concerns. He noted that Bush had not continued the Puerto Rico policy coordination network linking the White House and federal agencies that Clinton had established.

He said that: his administration would give the territory as much attention as a State; he would visit personally visit Puerto Rico and meet with Puerto Ricans; and he would have a full-time aide on Puerto Rico matters.

Acevedo Leads "Commonwealth" Campaign In States Against Kerry

While Kerry’s policy was praised by leaders of Puerto Rico’s statehood and independence parties, the free association faction of its "commonwealth" party, and people in the States of Puerto Rican origin such as Representative Jose Serrano -- the senior member of Congress of Puerto Rican origin, it was unfavorably received by the top leaders of the "commonwealth" party.

Although they personally muted their criticism of the policy in public and to Kerry, they immediately began organizing a quiet campaign against it in the States involving national labor unions, Members of Congress, and personnel of the Government of Puerto Rico’s offices in the States.

There are a number of aspects of the policy that party president and gubernatorial candidate Anibal Acevedo Vila and incumbent Governor Sila Calderon have opposed.

  • The activation of the President’s Task Force on Puerto Rico’s Status.
  • Spending of the $2.5 million appropriated by the federal government for education and a choice in Puerto Rico as to the territory’s status options.
  • The continuation of the presidential coordinating group on the range of policies that concern Puerto Rico.
  • A presidential aide on Puerto Rico matters.
  • Kerry’s proposal for a short-term extension of tax code Sec. 30A.
  • Extension of Child and Earned Income Credit payroll tax refunds to low-income Puerto Rican workers.
  • Puerto Rico’s inclusion in the Enterprise Zones program.

But Acevedo, a nominal Democrat in the U.S. House of Representatives, and his running-mate to replace him as Resident Commissioner, PR Senator and Democratic Committee Chair Roberto Prats, have zeroed in on only one complaint: Kerry’s recognition -- at least since 1998 -- that Puerto Rico’s current status cannot be considered a permanent solution to its status issue.

In essence, they are arguing that Puerto Rico is not a U.S. territory despite the determinations of the U.S. Supreme Court, the U.S. Justice and State Departments, and components of several Congress’ that Puerto Rico is subject to the federal government’s powers under the Territory Clause of the U.S. Constitution.

Instead of being a territory, Acevedo and Prats contend that Puerto Rico is a "Commonwealth," although "Commonwealth" is just a word in the English translation of the name of Puerto Rico’s insular government. "Commonwealth" status, they claim, can be permanent.

A principal reason that U.S. territorial status cannot be considered permanent, however, is that it does not provide for voting representation in the federal government. All people have a continuing right to a democratic form of government. So, as long as Puerto Rico’s present status continues, Puerto Ricans will have a right to independence and the right to petition for free association or U.S. statehood.

To date, Acevedo’s solution to this problem has been to propose a "Commonwealth" that includes national government democracy. Since 1998, he has led the "commonwealth" party in advocating that the federal government as a whole irretrievably grant the Commonwealth the power to veto federal laws and the President authorize the Commonwealth to enter into binding agreements with foreign countries -- while Puerto Ricans continue to receive U.S. citizenship and U.S. programs benefits. Federal officials, however, have uniformly said that the proposal is impossible.

Recognizing that Kerry’s criteria for a status change for Puerto Rico requires the proposed change to not conflict with the Constitution and other basic policies of the U.S., Acevedo and Prats have limited their complaint to Kerry’s long-held position that Puerto Ricans have a right to seek nationhood or U.S. statehood until one such status option obtains majority support in the territory.

Publicly, they have been asking for a clarification of Kerry’s position on the issue . . . and dismissing Kerry staff reiterations of the policy.

Privately, they assert that his position is unfair and contradicts the desire of a majority of Puerto Ricans to continue the status quo on a permanent basis -- even though there has been almost no support for that idea expressed in Puerto Rico and even though they, too, want Puerto Rico’s status to change.

They also claim that Kerry’s position on the issue has changed from recent writings -- intentionally picking up on a theme of Bush’s campaign -- that Kerry ‘flip-flops’ on issues -- to put pressure on the senator from Massachusetts.

They primarily base this claim on a February letter that Acevedo obtained from Kerry. The letter stated that it would be "unfair" not to have "continued status as a commonwealth" as an option in Puerto Rico status referenda.

In fact, however, the letter does not conflict with Kerry’s policy or legislative record since neither excludes the possibility of a territory option labeled "commonwealth" in periodic referenda on the status issue.

Further -- and unmentioned by Acevedo -- Kerry’s letter defined the Commonwealth’s status as being that of a "territory." It also referenced the legislation that Kerry had sponsored that included "commonwealth" -- that is, continued territorial status -- only in the context of periodic referenda until a nationhood or statehood option was chosen.

Acevedo’s first move to try to get Kerry to reverse his long-held position on Puerto Rico’s status options was to get a national labor union to call Kerry’s campaign a day after the policy Kerry’s policy was released. To get this done, he enlisted the help of local union officials who support the "commonwealth" party. Labor unions are a major element of Democratic Party campaigns in the States.

Acevedo’s second step in trying to put pressure on Kerry was to have a prominent Democratic congressional leader personally complain to him about the policy. The congressman made arguments that echoed those of Acevedo and Prats.

At the same time, the head of the government of Puerto Rico’s office in Miami, Florida, Manuel Benitez, sent a memorandum to leaders of Puerto Rican origin in the area asking them to write Kerry in opposition to his Puerto Rico policy. Again, the same arguments against Kerry’s policy were made.

House Passes Acevedo Puerto Rico Disinvestment Incentive

The U.S. House of Representatives June 17th passed legislation requested by Resident Commissioner Acevedo that would encourage companies based in the States to take earnings out of Puerto Rico and reinvest the funds in the States.

The provision would reduce the federal corporate income tax rate to 5.25 percent for one year in the case of income that controlled foreign corporations (CFCs) send to their parent companies in the States. The intent is to get companies to ‘repatriate’ billions of dollars of investments from foreign locations to the States.

Acevedo requested the inclusion of Puerto Rico in the provision when it was considered by the Senate Finance Committee even though it would provide a very attractive incentive to companies to disinvest from the territory.

His request was approved and included in a major corporate tax bill that the Senate subsequently passed. The bill that the House has now passed is similar and it is virtually identical in the case of the CFC disinvestment provision.

It is unclear whether Acevedo made the request for inclusion of Puerto Rico not understanding that the provision is a disinvestment incentive, or to provide a windfall to certain companies, or because he mistakenly believed that the provision was a step towards one of the two major requests that he and Governor Calderon have made of the federal government.

The request was that companies in the States be permanently exempted from having to pay 85-100 percent of the federal income tax on their Puerto Rico profits. It had previously been rejected by the Senate Finance Committee, its counterpart committee in the House of Representatives -- the Ways and Means Committee, the U.S. Treasury Department, and the White House despite a lobbying campaign that spent ten of millions of Puerto Rico tax dollars.

Because the congressional tax cut for CFCs was limited to only one year -- versus the permanent tax cut Calderon and Acevedo wanted for Puerto Rico CFCs -- it provides the opposite economic incentive.

The similarity between the House and Senate bills makes enactment into law likely, although final congressional passage is not expected until the fall – perhaps after the election. Ultimate enactment is considered likely because a driving provision of the bill would repeal tax benefits that the World Trade Organization has ruled are not permitted under the General Agreement on Tariffs and Trade.

Based on the ruling, the European Union has begun phasing in trade penalties on some U.S. goods.

The House bill also permanently cuts the income tax rate on manufacturing in U.S. areas and certain other income from 35 to 32 percent. This provision is also similar to a provision of the Senate bill.

Acevedo reacted angrily when Kerry won inclusion of income from manufacturing in Puerto Rico in this tax cut. He said that it was "not what we wanted."

Without the provision, however, the tax rate on manufacturing income from Puerto Rico would be 35 percent while it is 32 percent in the States – another disincentive for manufacturing investment in Puerto Rico.

The House bill also extends for two more years a special increase in the amount of the federal tax on rum distilled in Puerto Rico, the Virgin Islands, and foreign countries that is granted the two territories.

The increase expired at the end of 2003. The provision and an identical Senate provision would extend the increase through the end of 2005.

Currently, the federal government grants Puerto Rico $10.50 of collections of the $13.50 per proof gallon tax. The amount was temporarily increased to $13.25 through an initiative proposed by former President Clinton while Acevedo’s opponent for the governorship, Pedro Rossello (statehood/D), was governor.

The "Washington Update" appears weekly.

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