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Who Will Lower Taxes: Rossello Or Acevedo Vila?
By CARLOS ROMERO BARCELO
October 21, 2004
Since the Popular Democratic Party won its first elections in 1940, is has never reduced taxes in Puerto Rico. On the contrary, it has consistently raised taxes. It has increased income taxes, property taxes, oil taxes, liquor taxes, cigarette taxes, excise taxes on other consumer goods, and it has increased all kinds of government service fees.
During the Second World War, like many other jurisdictions in the U.S., the Popular Democratic Party-controlled government imposed a Victory Tax, which remained in place for many years, even after the Second World War had ended. In the 1950s, Gov. Luis Muñoz Marin decided to impose new and much higher taxes on motor vehicles, which he claimed would have the effect of reducing or controlling the number of vehicles on Puerto Ricos roads and highways. The purpose of the tax was never achieved. However, the excise taxes on automobiles not only remained but were further increased.
During the 1940s, 1950s, and 1960s, income taxes were increased substantially by the Popular Democratic Party administrations; and in the early 1970s, Rafael Hernandez Colon imposed a state property tax for the first time in Puerto Rico. Until that time, only the municipalities had imposed a property tax. Together with the Municipal Property Tax, the new State Property Tax more than doubled the amount of property taxes paid by homeowners in almost all municipalities. He imposed a 6.6% excise tax on almost all consumer goods, and he enacted an additional income tax, similar to the Victory Tax of World War II, which the people named "La Vampirita."
The first governor who promised to lower income taxes and eliminate excise taxes on all indispensable consumer goods, including soap, detergent, toothpaste, eating and cooking utensils, diapers, tissue paper and many others was I. Not only did I promise, but I fulfilled my promise.
When I was sworn-in in January 1977, the income tax rate for individuals whose taxable income was in excess of $75K was as high as 84%. In other words, an individual earning above the amount specified by law had to pay 84¢ of every dollar to the government of Puerto Rico in income tax. The tax rates were obviously confiscatory and a stimulus for people to lie about their income and to be very creative on their income tax returns. The amount of fraud and income tax evasion those taxes provoked was outrageous.
During the 1976 campaign, I promised to reduce income taxes and eliminate the excise tax on indispensable goods. By the time I left office in January 1985, there had been a substantial reduction in income taxes to individuals; we had increased the level of income at which individuals would have to start paying income tax; we also increased deductions and added some.
When Hernandez Colon returned to office in 1985 until January 1993, he again started increasing taxes, particularly fees for different government services, and he imposed additional taxes on gasoline, imported oil products, and other goods.
As a result of those new increases and their adverse effect on our economy, Pedro Rossello promised to lower taxes in the 1992 campaign; after he was elected, he started fulfilling his promises and lowered income taxes for individuals to their lowest level in decades. The new rates are now barely a few percentage points above the federal income tax, which has been lower than our local income tax rates since I can remember. He also increased deductions and other benefits to taxpayers. Both he and I promised to reduce taxes, and we did.
Then came Gov. Sila Calderon in 2001, and she has increased liquor taxes, cigarette taxes, fees for all kinds of government services; specifically, she increased the excise taxes on sport utility vehicles (SUVs), the so-called 4X4s, a tax I had reduced during my administration to allow farmers, housewives, and single moms to benefit from lower taxes on the vehicle of their preference.
Now, during this campaign, Pedro Rossello has promised a tax reform to reduce taxes, particularly for low-income and middle-income earners. He has also promised to eliminate the 6.6% excise tax and replace it with a lower sales tax.
One of the most controversial taxes in Puerto Rico has been the 6.6% excise tax, which was and is levied on most consumer goods. Importers have to pay this tax before they even sell the taxed goods. Therefore, the cost of financing the 6.6% excise tax substantially increases the tax by the time the goods reach the consumer.
Another disadvantage of the excise tax is that people dont know they are paying any tax at all, because it is a hidden tax that increases the price of goods by 10% to 14% over and above the price at which the goods would be sold if there were no excise tax. Having to pay taxes before selling their goods imposes a burden on honest importers and distributors and allows dishonest merchants to commit fraud, because payment of the excise tax is very difficult to monitor or control. A large percentage of goods are sold in Puerto Rico by unscrupulous merchants who defraud the government and charge their consumers as though they have paid the excise taxes when they havent. It is almost impossible to tell whether the taxes on goods being sold in a given store have been collected.
Since the excise taxes are imposed at the moment of entry into the market and not at the moment of sale to the consumer, the 6.6% excise tax has to be financed by the merchant and therefore increases the cost of the goods by 10% to 14% at the time the goods are sold. On the other hand, a sales tax, which isnt collected until the goods are sold, would increase the price to the consumer only by the amount of the tax. A 4% or 5% sales tax would increase the cost of the goods by 4% or 5%, which is much less than the 10% to 14% increase in price caused by the excise tax.
Anibal Acevedo Vila knows this, but he is used to lying to the people. He knows Pedro Rossello has made it clear the sales tax would replace the excise tax. It isnt an additional tax, and it is a lower tax. At the same time, it is easier to supervise and collect. It would substantially reduce the nonpayment of taxes, which now is much easier to accomplish with the excise tax system.
Pedro Rossello has promised to reform the tax law and reduce taxes. In the past, he has promised to do so and has fulfilled his promise. Past performance shows us we can rely on his word.
Acevedo Vila, on the other hand, has been Gov. Calderons partner during this administration. They bragged about being a team, working together, which they pointed out, was different from the administration of Pedro Rossello, who was at odds with Carlos Romero Barcelo.
As part of that team, Acevedo Vila has supported all the increases in the taxes on liquor, cigarettes, and SUVs, and in the fees for government services during the Calderon administration. As minority leader in the House before 2001, Acevedo Vila never submitted any legislation to reduce income taxes or excise taxes. Now, in the last days of the campaign, he lies to the people, saying that he would lower taxes and that Pedro Rossello would increase taxes. He claims that by imposing a sales tax, Rossello would add a new tax on top of the excise tax. He knows that he is lying and that the sales tax proposed by Rossello would replace the excise tax, that it wouldnt be added to the existing excise tax; he also knows it would result in lower prices to the consumer.
Given the history of Pedro Rossello, who in the past has promised to lower taxes and has done so, and the history of Acevedo Vila, the candidate who has never done anything to lower taxes but, on the contrary, has supported his governors tax increases, who do you think would lower your taxes in the next four years? Acevedo Vila or Rossello?
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.