Puerto Rican Taxpayers Pay For Summer Camp For Florida Children… Senate Would Tighten Rules On Possessions’ Income Tax Exemption… Congressional Report Undercuts Calderon Vieques Clean-up Claim

August 13, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

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Puerto Rican Taxpayers Pay For Summer Camp For Florida Children

Puerto Rico’s taxpayers are paying for a summer camp for children near Miami, Florida.

The camp is being held at the territorial government’s South Florida office.

The Commonwealth’s Coral Gables, FL office is conducting the camp as a "part of" Puerto Rico Governor Sila Calderon’s "commitment to the growth and empowerment" of "Puerto Rican communities" in the States "through the promotion of Puerto Rican culture and values," according to Calderon’s office in Washington.

It was not explained what "values" the Commonwealth government is trying to instill in the Florida children. Also unexplained was whether the growth of the "Puerto Rican communities" in the States is to be achieved through migration from Puerto Rico by making life more attractive in the States.

It was learned that this is the third year that the office is conducting the camp.

Conducting the camp is consistent with the view of Calderon ("commonwealth" party/no national party) that "Puerto Ricans are . . . one people, no matter where they were born or where they reside" and it is the role of the territorial government to provide government services to people of Puerto Rican heritage "everywhere."

Under Calderon and Puerto Rico Federal Affairs Administration (PRFAA) Director Mari Carmen Aponte, the Commonwealth’s 12 "community outreach offices" in the States are charged with advancing the "common . . . national interests" of Puerto Ricans by "improving economic, educational and social" opportunities for citizens of the States of Puerto Rican heritage.

PRFAA’s Houston, Texas office improved social opportunities for Puerto Ricans in the vicinity of its office by sponsoring a "networking mixer" with the city’s Museum of Fine Arts the week before this past one. In addition to live music, attendees were treated to "complimentary food, refreshments and giveaways."

The office will hold another networking event on August 24th. Again, food will be provided but this event will be a meeting. The purpose is to "address educational needs in the Houston" area. The needs are said to include "cultural education."

Senate Would Tighten Rules On Possessions’ Income Tax Exemption

The U.S. Senate has passed a provision that would empower the Treasury Department to tighten the rules for determining whether an individual is a resident of Puerto Rico or the U.S.’ other territorial "possessions" for income tax purposes.

The Senate’s intent is to ensure that citizens of the States who establish residence in a possession are not relieved of federal income tax liability unless they are real residents of the territory.

Under current law, residents of the possessions do not have to pay federal income tax on territorial income. They do, however, have a federal income tax liability on income from the States.

While the provision applies to the U.S.’ five territorial possessions, the Senate was prompted to act by cases of wealthy individuals in the finance industry not paying federal income taxes after they established residences in Puerto Rico’s neighboring territory of the U.S. Virgin Islands.

The provision would authorize the Treasury Department to apply rules that would ensure individuals have their "substantial residence" in a possession if they are to avoid paying federal income tax on territorial income.

The staff of the Congress’s Joint Committee on Taxation has estimated that the provision would enable the federal government to collect $188 million more in income taxes over the next 10 years.

The Senate quietly added the provision to the major tax legislation that has passed both houses of the Congress and is considered a ‘must-pass bill.’ A ‘conference committee’ of representatives of the Senate and the House of Representatives is trying to reconcile differences between the versions of the bill, which is considered to be the most significant corporate tax bill in decades.

The bill is considered ‘must-pass’ because it would repeal a tax benefit that cuts income taxes on sales that U.S. companies make in foreign countries through special foreign sales subsidiaries. The World Trade Organization has ruled that the tax benefit is an impermissible subsidy of exports.

The bill includes four other provisions of note related to Puerto Rico. One would cut the income tax on earnings that ‘Controlled Foreign Corporations’ (‘CFCs’) ‘repatriate’ to their parent companies in the States by 85% for one year only.

Many of Puerto Rico’s large manufacturing operations are CFCs.

The purpose of the provision is to encourage the CFC’s to take income out of CFC locations and reinvest it in the States. The Joint Tax Committee staff has estimated that companies will take billions of dollars out of CFC locations, including Puerto Rico.

Puerto Rico’s resident commissioner in Washington, however, disagrees with the Joint Committee findings. Anibal Acevedo Vila, the "commonwealth" party’s candidate for governor, has said that there would be no disinvestment from Puerto Rico even if there is from other CFC locations.

In fact, Acevedo requested the application of the CFC disinvestment provision to Puerto Rico. He thought that it was a step towards the principal federal goal that he and Governor Calderon, his mentor, have had since taking office in 2001 – permanent tax exemptions of 85-100% on CFC earnings repatriated from the territory to the States. He apparently did not understand that the bill’s provision was designed to cause disinvestment from CFC locations rather than investment in them.

The Calderon/Acevedo 85-100% CFC tax cut has been rejected by the Congress’ tax committees -- Senate Finance Committee and House Ways and Means -- and the Treasury Department and White House under President Bush.

Another provision of the legislation would cut the corporate income tax rate from 35% to 32%. In this case, Acevedo objected when Senator John Kerry (MA) successfully proposed including income from Puerto Rico in this tax cut, which originally applied to the States and not U.S. territorial possessions. The Acevedo position would have meant that corporate income from Puerto Rico would be taxed at 35% while income from the States would have been taxed at 10% less.

A fourth provision of the bill related to Puerto Rico would extend a grant to the Commonwealth and the Virgin Islands worked out when Acevedo’s main rival for the governorship this year, Pedro Rossello (statehood), was governor before. The grant is $2.75 per proof gallon of the tax on rum produced in the territories and rum produced in foreign countries imported into the U.S. Each territory would receive $2.75 of the collections of the tax on rum it produces. Puerto Rico would get about 90% of the collections on foreign rum.

Both territories already get $10.50 per proof gallon of the $13.50 tax. The territories got an additional $2.75 per proof gallon through 2003 under an initiative of former President Clinton that was extended once already.

The additional $2.75 would provide the territories with $151 million in the federal fiscal year that begins October 1st, fiscal year 2005, and $18 million in fiscal year 2006, according to the Joint Tax Committee staff.

A fifth provision of the bill related to Puerto Rico would reduce the withholding tax on dividends that business operations in the States owned by Puerto Rican companies pay to their insular parent companies. The current 30% tax rate would be reduced to 10%.

The Joint Tax Committee staff estimated that the provision would cost the federal government $99 million in lost revenue over 10 years. The provision was sought by Banco Popular, Puerto Rico’s largest bank, which has a substantial branch operation in the States.

Although the legislation is considered to be a ‘must-pass’ bill, its fate was called into question this past week by a Joint Tax Committee staff assessment that most of its tax benefits would go to a small number of profitable manufacturers and most companies -- including manufactures that are in trouble -- would receive no assistance or insignificant aid.

Only 1.1 percent of the country’s 2.2 million companies would be helped by the $63.3 billion corporate income tax cut. Less than five percent would save more than $50,000 in taxes. Almost all of the $63.3 billion in benefits would go to les than 25,000 companies, such as pharmaceutical giant Johnson & Johnson, a major manufacturer in Puerto Rico. And most of the benefits would go to only 500 companies that have an average profitability of $9 billion a year.

"Had Senators been aware of this . . . they likely would have rejected this overly narrow corporate tax cut for the ‘Fortunate 500’" the Washington Post quoted lobbyists as writing.

Heavy manufacturers such as U.S. car and steel companies are lobbying against the bill. Senators John D. Rockefeller IV (D-WV) and Arlen Specter (R-PA) have proposed that manufacturers be able to choose between the bill’s 10% tax rate cut and a tax credit for employee health care costs.

Congressional Report Undercuts Calderon Vieques Clean-up Claim

A congressional report on the issue of cleaning the former U.S. Navy-controlled land on the island of Vieques, PR of fired ordnance and other contamination has revealed Governor Calderon’s "silver bullet" for ensuring a full clean-up to, in fact, be a blank.

And not only would the "silver bullet" not require any greater clean-up than federal agencies currently plan, it brings with it significant disadvantages as well as minor advantages.

The report also exposed a major cost of the strategy that Calderon and Resident Commissioner Acevedo followed in their unsuccessful effort to have Navy combat training at a range on the island ended earlier than the federal government had agreed to at the request of former Governor Rossello.

Done for by the Congressional Research Service for Representative Jose Serrano (D-NY), the report outlined the clean-up plans without Calderon’s "silver bullet." The Navy is spending $22 million to clean up 8,100 acres, a quarter of the island, formerly used for weapons storage. It plans to spend $103 million to clean-up 14,669 acres, 40% of the island, which used to be the combat training range.

Many Puerto Ricans are unhappy that the former range is not being cleaned to the extent needed for human habitation. Calderon said she is ensuring a full clean-up by exercising the one opportunity that each U.S. State and territory has to place a location on the National Priorities (‘Superfund’) List for environmental clean-ups. Other locations are placed on the list by the U.S. Environmental Protection Agency (EPA).

Calderon’s designation included all of Vieques and the island of Culebra, PR as well. Navy target practice was also conducted on a portion of Culebra until it was ended there over a quarter of a century ago.

As the report repeatedly emphasized, however, Superfund site designation does not increase clean-up standards. The standards are determined by the way that the land in question is to be used.

Most of the 14,669-acre former range is a Wildlife Refuge. About 900 acres is a Wilderness Area. The U.S. Interior Department can limit access to a Wildlife Refuge. Access to Wilderness Area is prohibited. Because the public does not have free access to the former range, the clean-up standards for it are lower than the standards are for land used by the public, such as land that the federal government gives up.

Rossello had convinced the Navy and President Clinton that the federal government should give up ownership of all but 2,000 acres of the range with Puerto Ricans having a priority claim to it. The 2,000 acres were to go to the Interior Department for protection of environmental resources.

The federal law that approved the Clinton-Navy-Rossello agreement on the range did not provide for the disposal because Senator James Inhofe (R-OK) did not want the federal government to commit to it before the referendum on Vieques that was to determine the range’s future. The U.S. Interior and Navy Departments, however, subsequently proposed legislation to provide for the disposal.

The agencies later dropped the proposal, however, when Calderon refused to recognize the agreement and broke Commonwealth commitments under it. And Inhofe and Democrats as well as Republicans on the House Armed Services Committee reacted to Calderon’s actions by resolving to block a disposal.

A 2001 law on the range enacted in response to Calderon and Acevedo lobbying for an earlier closure of the range closed the book on the disposal idea.

Calderon and Acevedo said at the time that they would get the land transferred to local ownership anyway. They made no apparent efforts to do so, however, and have not spoken of the issue for quite some time. Calderon shifted the issue by making the Superfund designation.

Superfund designation would provide only minor advantages for the Vieques range clean-up but would also carry with it significant disadvantages. One advantage would be to ensure federal agency coordination and expeditious action on the clean-up -- but agency coordination and expeditious action was probably not going to be a problem because of the high-profile of the Vieques issue.

Another advantage is $50,000 for the local community’s involvement in the clean-up process -- but the EPA has granted $20,000 for this purpose without Superfund designation and the community does not lack funds.

The report noted Superfund designation could limit funding for cleaning Culebra. Designation would make the Navy responsible for funding cleaning efforts on Culebra whereas the U.S. Army’s Corps of Engineers is currently spending millions of dollars on the cleaning. Under a Superfund designation, Culebra cleaning would have to compete against Vieques cleaning and other Navy cleaning priorities and it would not be eligible for the Army’s clean-up funds.

Army opposition has delayed the Superfund designation for half a year but the Army recently agreed not to press its opposition further.

Superfund designation would also limit the opportunity for Puerto Ricans to go to court over the clean-up.

A greater level of clean-up could be required if contamination poses a threat to the health of the residents of Vieques but U.S. Health and Human Services Department studies have found no such threat despite claims by Calderon and others.

The report also pointed out that Superfund designation of Vieques and Culebra sites already being cleaned would eliminate the possibility of the Commonwealth designating an environmentally-damaged site on the island of Puerto Rico as a Superfund site in the future.

The "Washington Update" appears weekly.

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