Acevedo Vilá Utters The T-word

by John Marino

October 15, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

. Running behind in public opinion polls, including his own, Popular Democratic Party gubernatorial candidate Aníbal Acevedo Vilá has seized on an issue he believes will give needed traction to his campaign: taxes.

By coming out strongly against the implementation of a sales tax in Puerto Rico, Acevedo Vilá has sought to draw a distinction between himself and his New Progressive Party rival, former Gov. Pedro Rosselló. But it’s not clear if Acevedo Vilá’s record on taxes will be perceived as all that winning by the island’s electorate.

First, the polls. The latest this week, by El Nuevo Día newspaper, shows Rosselló with a still strong 8 percentage point lead. That’s less than another poll this month commissioned by El Vocero newspaper, which showed Rosselló with a 14 percentage point lead, and more than a poll by The San Juan Star, which showed the former governor with a 5.6 percentage point lead.

The resident commissioner, who previously called El Vocero’s poll "unbelievable," this week said the El Día poll was just as wrong. As way of proof, he offered the results of his own internal polls (perhaps, a first by an island politician) that showed him trailing Rosselló by 1 percentage point, within the poll’s 3 percent margin of error.

The most telling sign that the sea of polls, taken as whole, are probably an accurate description of public sentiment today, give or take a few percentage points, is Acevedo Vilá raising the question of taxes, especially because the current PDP administration is generally considered vulnerable on the issue.

Acevedo Vilá charged that Rosselló’s support of a sales tax would "punish" the middle class. He discussed the issue as if it were a Rosselló proposal. "I would not push for a tax that punishes the poor and middle class," he said, adding that it would be a tax on "everything you consume."

The idea, however, is not a new one. And it was given some oomph by the current PDP administration even though the party historically has fought against it, arguing it was a step towards statehood. The Legislature held hearings on a tax reform that embraced the imposition of a sales tax as part of a larger overhaul, and the Calderón administration commissioned an expensive study on the issue, which examined a sales tax as one alternative.

What Acevedo Vilá did not say was that the idea is being talked about in the context of eliminating the island’s 6.6 percent excise tax on imported goods. Economists have long argued for a replacement of the excise tax with a point-of-purchase tax, saying placing a tax at the beginning of the distribution chain magnifies its burden as it is passed along from wholesale distributor to retail outlet to the consumer. In other words, a smaller sales tax could be placed at the point of purchase that would net the government the same tax revenues but benefit the consumer in the end.

PDP lawmakers, previous to Acevedo Vilá’s statements, had been leaning towards the imposition of a sales tax, or the variant value-added tax. And Gov. Calderón has said that the next governor would be "morally obligated" to follow the recommendations of the study, which are still being kept under wraps.

There are also practical considerations to thinking about ending the excise tax on imported goods. As it is, rules regarding the handling of U.S. mail make it extremely difficult for the commonwealth to collect on goods sent via the U.S. postal service to the island. And air courier companies have successfully fought commonwealth requests to collect taxes on its behalf on merchandise they send into the island. In short, the handwriting is on the wall. Federal rules regarding interstate commerce could quickly render obsolete the ability of the commonwealth to collect on an excise tax in many instances.

By not discussing the context, indeed the consensus, surrounding the sales tax issue, the resident commissioner, at the least, is being disingenuous. The Calderón administration’s record only taxes only accentuates that appearance.

Gov. Calderón’s first move on the tax front was to slash capital gains taxes in half, which generally benefited the rich and some island businesses. Further taxes – on alcohol, cigarettes, etc. – hit the poor and middle class especially hard, and even the upper middle class with the SUV tax. She also put off for a year a planned "marriage penalty tax cut," and then passed a different middle class tax relief package by the time it came to enactment.

By contrast, Rosselló instituted a tax reform that methodically slashed tax rates across the board over a multi-year period. And his administration also offered up aggressive tax breaks for businesses in the face of waning federal tax incentives.

The resident commissioner should be congratulated for bringing up a substantial issue, which will have a more direct impact on the lives of Puerto Ricans than the vagaries of pledges to take action on status. But it’s still unclear how the discussion will swing his way given the public record.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

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