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The Three Taboos Against Equality


July 29, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

The adoption of the "commonwealth" status in 1952 was heralded as the establishment of an autonomous state "freely associated" with the United States. However, the truth is that the event was nothing more than a change of a name from "territory" to commonwealth" and the adoption of a constitution to substitute the Jones Act. The only other, very minor change was that the decisions of the Supreme Court of Puerto Rico would no longer be appealed to the U.S. Court of Appeals, but directly to the U.S. Supreme Court.

The Jones Act (1917) established a republican form of government in Puerto Rico with the three branches of government, the executive, the legislative and the judicial, and set forth their power, authority and limits. It also established our relationship with the 50 states of the union and the rights guaranteed under the U.S. Constitution, which were guaranteed then by the Jones Act and now by the new local constitution.

The people of Puerto Rico were allowed by Congress to adopt a constitution in the image of the Jones Act. Once adopted, it had to be reviewed by Congress, which actually eliminated from it certain provisions, such as the right to work that was considered unacceptable. Once amended and accepted by Congress as an adequate substitute for the Jones Act, the constitution was then ratified by the people of Puerto Rico.

I have been surprised over and over again by how many people believe that the right to elect a governor was granted by the local constitution in 1952. Nothing is farther from the truth. Our first governor was elected in 1948, four years before the adoption of the constitution. We were no more self-governed as a "commonwealth" than we were as a territory.

Because there were no real changes, except insignificant ones, Muñoz Marin and his collaborators were aware that Puerto Rico still remained an unincorporated territory and they realized they needed to develop a strategy to make people believe that we were really a free associated state and that a bilateral pact had been signed. They decided that the campaign should be based not on sound arguments and reason, but on misrepresentations of the "commonwealth" and taboos that would make people afraid of achieving equality.

Fear was a weapon that had been successfully used by Muñoz Marin against independence. He had popularized a statement "la independencia es como tirarse por un barranco" (independence is like jumping off a cliff). He was so successful in stopping the growing sentiment for independence that he decided to use the same weapon against statehood. How? By making people afraid of being equal and by lying to people about the importance of the right to vote in national elections and the importance of elected representation to Congress.

Muñoz Marin and his collaborators established three taboos against statehood that have been used very successfully throughout the years. Two of them have been completely discredited and shown to be lies, and the third has been strongly weakened.

The first taboo that Muñoz Marin and his collaborators made up to instill fear of statehood in the people of Puerto Rico was that the manufacturing industry would come to Puerto Rico only if they had 100% income tax exemption. They claimed that not only would new manufacturing plants not be attracted to Puerto Rico, but that the existing ones would leave Puerto Rico if they had to pay any income tax. They claimed that federal income tax exemption was an inalienable right guaranteed by the "commonwealth" and that Congress could not take it away without our consent. Anything else would be a violation of the "bilateral pact" which they alleged, and still allege exists between Puerto Rico and the United States.

They have lied over and over again. Even people like Rafael Hernandez Colon, Sila Calderon, Anibal Acevedo Vila, Roberto Prats, Antonio "Tito" Colorado, and Jaime Fuster, who are intelligent and well-educated have lied to our people over and over on this issue. If what they have said were true, how come the federal income tax exemption has already been partially eliminated and will be completely eliminated by 2006 and the "commonwealth" has not filed a lawsuit to prevent it? Because they know they have lied–there's no "bilateral pact."

Our people have been deprived of significant financial resources, billions of dollars, that the wealthiest corporations earned in Puerto Rico without contributing anything to pay for the cost of educating our children, the cost of healthcare for those families who can’t afford health insurance and the cost of building our roads and protecting our citizens against crime. Our farmers, our small businesses, our nurses, our teachers, our policemen, our workers, and our professionals have paid the billions of dollars that the wealthiest corporations in the world failed to contribute. That is why our local income taxes are so high.

When elected governor in 1976, I passed the first law that taxed the until-then exempt corporations. They paid and they did not leave. The Popular Democratic Party (PDP) has spent tens of millions of dollars on campaigns mostly financed by the income-tax-exempt corporations, their officials, and owners, which have been directed to raise fear in the people of Puerto Rico. Those campaigns tell the people that the elimination of the federal tax-exemption program would bring about the exodus of the manufacturing plants and massive unemployment. They have claimed their studies indicate 300,000 jobs would be lost and "commonwealth" is the people's safeguard against this economic disaster. In these campaigns, they have lied over and over again, trying to make people believe taxing the wealthiest corporations and manufacturing enterprises in Puerto Rico would cause massive unemployment. How unfair the PDP has been to our people!

For many years, I proposed that instead of federal income-tax exemption [under U.S. Internal Revenue Code Section 936], we should have payroll tax credits, that is, credits against income taxes based on the number of employees hired and the amount of wages paid. The tax incentives would be directly tied to the jobs created by the manufacturing enterprise. I was criticized and ridiculed by members of the Puerto Rico Manufacturers Association and the Chamber of Commerce and by leaders of the PDP for proposing the wage tax credits. Most of those who yesterday ridiculed me today support the wage tax credit.

When President Bill Clinton was elected, I managed to convince him and his advisers in the White House that the wage tax credit was better for the nation and Puerto Rico than the income-tax exemption. President Clinton sent a bill to Congress phasing-out the income-tax exemption and establishing the wage tax credit. I further proposed that in view of the fact that the U.S. Treasury was going to get hundreds of millions, and eventually billions of dollars from the taxes that were not then being paid, we should be given full benefits under the Medicaid program to provide funding for healthcare to our indigent families which, at that time, meant over $1 billion a year.

I wasn’t supported by anyone in this endeavor at that time. The all-out campaign by pharmaceuticals and the PDP against the proposal to substitute the income-tax exemption for wage tax credits brought about a delay in the phase-out of the income-tax exemption but, at the same time, the lack of support for the wage tax credit also brought about its elimination by the year 2006.

During the debates in Congress on the income-tax exemption, I insisted the best thing for Puerto Rico would be wage tax credits and participation in the enterprise zones program. The tax-exempt corporate interests argued in Congress against the elimination of the income-tax exemption on passive income, saying that if it were eliminated, there would be a great shortage of investment money in Puerto Rico.

Well, the income-tax exemption on passive income was eliminated and we have no shortage of investment capital, as a result. On the contrary, the home mortgages, auto loans, and other commercial and business loans now pay lower interest rates that are more competitive with interest rates throughout the U.S. than ever before.

In a forum held by the Bankers Association during the 2000 campaign, I predicted that once the passive income-tax exemption was eliminated, interest rates would go down and competition for loans among banks would increase, particularly if we also eliminated the 29% withholding tax on loans from sources within the 50 states of the union. I was criticized and contradicted by the executive vice president of the Bankers Association, Arturo Carrion. He claimed the elimination of the passive income-tax exemption would be an economic disaster for the economy of Puerto Rico because money sources would dry up. Just the opposite has happened.

I've had the satisfaction of reading that even Secretary of Economic Development & Commerce Milton Segarra, when asked in a recent USA Today supplement (July 6, 2004) how the repeal of Section 936 had adversely affected investment by U.S. firms in Puerto Rico, said that none has moved away from the island because of the change and that, on the contrary, in the last few years there has been substantial new investment. To have the head of Economic Development of a PDP administration acknowledge that the elimination of Section 936 has not brought about the closing of manufacturing plants or halted new investment is a recognition by one of their own, that the PDP has been lying and raising false fears for merely partisan political purposes.

To be continued...

Carlos Romero Barcelo is a two-term former governor of Puerto Rico (1977-84), a two-term former resident commissioner (1993-2000), and a two-term former mayor of San Juan (1969-78). He was president of the New Progressive Party for 11 years.

This Caribbean Business article appears courtesy of Casiano Communications.
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