Bush Administration Contradicts Puerto Rico Candidates On Tax Refunds… Congress Finally Extends Rum Tax Grants Increase… Pro-Statehood Group Launches Website Encouraging Absentee Voting

September 24, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

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Bush Administration Contradicts Puerto Rico Candidates on Tax Refunds

The Bush Administration this past week said that it had not dropped its proposal to exclude Puerto Ricans from the refund of Social Security and Medicare taxes to workers with children.

A spokeswoman for the U.S. Treasury Department confirmed that the proposal remains a part of the president’s budget for the fiscal year that begins October 1st.

The proposal would save the U.S. Treasury $2.1 billion over 10 years by discontinuing the refunds to Puerto Ricans.

The Treasury Department statement was made because of false information issued by the office of Puerto Rico’s Resident Commissioner in the U.S., Anibal Acevedo Vila. Acevedo, the "commonwealth" party candidate for governor of the territory, had said through his chief of staff that the Bush Administration had dropped the proposal.

Public concern arose this summer when Puerto Ricans learned about the proposal, which had been made in February. Neither Acevedo nor his political mentor, Governor Sila Calderon ("commonwealth"/no national party), had alerted Puerto Ricans to the proposal although they both had been informed of it.

To quell the concern, Acevedo and Calderon told Puerto Ricans that the proposal was not a real threat.

According to the U.S. Internal Revenue Service, 152,000 Puerto Rican families were eligible to receive refunds for tax year 2001.

Recently, Acevedo’s office reportedly claimed to have obtained a written confirmation from the Treasury Department that the Bush Administration had dropped the proposal. Acevedo aide Paul Weiss failed, however, to produce any such document.

The refund is an extension of the credit against income tax liability that middle-income workers with children can take for each child that they support. It was initiated by the Clinton Administration.

In the States, the refund benefits workers who make too little to owe income taxes. In Puerto Rico, it goes to middle-income as well low-income workers because most Puerto Ricans do not owe federal income taxes. (Currently, the federal government only taxes income Puerto Ricans earn from the States and most Puerto Ricans only earn their income in the territory.)

In Puerto Rico, however, only workers with three or more children get the refunds. In the States, low-income workers with any number of children are eligible.

This disparity exists because low-income workers in Puerto Rico do not get similar Earned Income Tax Credit (EITC) Social Security and Medicare (payroll) tax refunds. The Child Credit payroll tax refunds are only provided to the extent that the total exceeds the amount of a family’s EITC payroll tax refunds. The EITC payroll tax refunds are enough to cover the refunds for the first two children in a family.

The Child Credit and its payroll tax refunds are currently as much as $1,000 per child. Thursday, both houses of the U.S. Congress agreed to continue the credit and refund at this level for the next five years. Without the extension supported by the Bush Administration, the benefits would have been reduced to $700 per child next year and different amounts in succeeding years.

Acevedo’s office tried to suggest that the passage of the legislation that extended the $1,000 amount of the benefit mean that the Bush proposal to exclude Puerto Ricans from the refunds was dead. The proposal to exclude Puerto Ricans was made separately from the proposal to extend the $1,000 amount, however. Additionally, it was not considered when the $1,000 amount extension was considered.

In this case, Acevedo’s office was contradicted by the Center on Budget and Policy Priorities. A top officer of the non-partisan think tank said that the refunds to Puerto Ricans had "escaped a bullet" but the proposal could well resurface next year if Bush is re-elected. This is because the $2.1 billion at stake over 10 years would look attractive to policy-makers trying to reduce the ballooning federal budget deficit. It is widely expected that the federal government will consider budget deficit reduction measures next year.

Democratic presidential candidate John Kerry’s campaign has criticized the Bush proposal as "callous" and exemplifying a disregard for Puerto Ricans on the part of President Bush. Bush has addressed Puerto Rico issues less than predecessors, including his father.

The Kerry campaign has also said that, as president, the senator from Massachusetts would also work to treat Puerto Rico equally with the States in the federal tax system’s benefit programs for low-income workers. That would extend the Earned Income Credit and its payroll tax refund program to the territory and expand the Child Credit refunds in Puerto Rico to low-income workers with one child or two children.

The tax bill passed Thursday did not include a Democratic proposal to preserve the refunds for very low income wage-earners. The refunds were initially made available to workers with children who made at least $10,000 a year, with this amount adjusted upward for inflation in the value of money over time. Currently, workers must earn $10,750 per year to qualify for the refunds. The unsuccessful Democratic proposal would have restored the $10,000 minimum and kept it in place.

Acevedo was not the only Puerto Rican politician who claimed to have been told by a Bush Administration official that the proposal had been dropped. Statehood party resident commissioner candidate Luis Fortuno reportedly said that he had obtained similar information from a White House source. Fortuno is a member of the Republican National Committee and has close ties with the White House as well as with Republican congressional leaders.

Congress Finally Extends Rum Tax Grants Increase

The tax bill passed by the Congress Thursday also included a provision to extend through 2005 an increase in the amount of federal collections of excise taxes on rum produced in Puerto Rico, the U.S. Virgin Islands, and foreign countries granted to Puerto Rico and the Virgin Islands. The increase expired at the end of in 2003.

The extension will increase the amount of the federal taxes granted the two territories an estimated $169 million, $151 million in federal fiscal year 2005, which begins October 1, and $18 million in fiscal year 2006. Puerto Rico would receive about 90 percent of the increased grants.

A large amount of the increase would be paid next year because the grants include collections of the tax from this past January 1st. The collections were retained by the U.S. Treasury because the grant increase provision expired last December 31st.

Only a small amount of grants would be paid in fiscal year 2006, which begins October 1, 2005, because the increase in the amount of the grants would only be in effect for three months and because the U.S. Virgin Islands is paid its grants in advance on an estimated basis.

The extended grants are $2.75 of the $13.50 tax on a proof gallon of rum (the tax is assessed on the basis of alcohol rather than liquid). Puerto Rico and the Virgin Islands receive $10.50 per proof gallon of the $13.50 tax under laws with no end dates.

The grants were first increased from $10.50 to $13.25 on a temporary basis under an initiative of then President Clinton developed with then Resident Commissioner Carlos Romero-Barcelo (statehood-D), then Governor Pedro Rossello (statehood/D), and the Puerto Rico Conservation Trust. The Trust receives one-sixth of the increase under a policy established by Rossello.

Lobbying by the Trust and representatives of the Virgin Islands were primarily responsible for congressional approval of the extension of the increase. The extension had also been proposed by the Bush Administration. Resident Commissioner Acevedo did not play a significant role in the extension.

Efforts to extend the increase through 2005 began early in 2003. They encountered no real opposition but the extension was delayed by disputes regarding other tax measures. This delayed the extension because it was being considered in the context of other tax proposals.

Without the increase extension, Puerto Rico would have received an estimated $303 million in tax transfers in fiscal year 2005. The Bush Administration’s estimate for the transfers in fiscal year 2004 -- which has only included three months of the increase at the end of 2003 -- is $314 million. Puerto Rico received $357 million in the grants in fiscal year 2003, a year in which the entire 12 months was covered by the increase in the grants.

Pro-Statehood Group Launches Website Encouraging Absentee Voting

A non-partisan organization promoting U.S. Statehood for Puerto Rico has established a website (www.statehoodnow.com) encouraging Puerto Rican voters who favor statehood to vote by absentee ballot in the upcoming elections in the territory.

The website, established over the summer by the Washington, DC-based Americans for Puerto Rican Statehood (APRS), includes information on how Puerto Rican students, military personnel, and others can apply to vote by absentee ballot in the Commonwealth’s November 2nd elections.

Hoping to raise awareness of the pro-statehood movement, the group is encouraging Puerto Ricans to turn out and send a message to elected officials in Puerto Rico and Congress that the territory should become the nation’s 51st State.

Although the group has no firm estimate on how many voters it has been able to register, traffic on the group’s website has increased by over 100 percent in recent months.

The "Washington Update" appears weekly.

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