Para ver esta página en español, oprima aquí.

Puerto Rico-USA Foundation, Inc.


By John A. Regis Jr

November 2004
Copyright © 2004
Puerto Rico-USA Foundation, Inc. All rights reserved. 

On October 22, 2004 President George W. Bush signed HR4520 into a law known as the Job Creation Act of 2004. This law provides for a 136 BILLION dollar economic bundle of incentives and measures for economic development and job creation for all states. For Puerto Rico this law contains a number of measures that will be severely harmful to the Puerto Rico economy and will result in the loss of thousand of jobs.

This law will probably be among the most destructive legislation to the Puerto Rico economy since the beginning of the U.S - Puerto Rico relations began in 1898. It will be the first time since 1921 that federal taxation to manufacturing subsidiaries firms doing business in Puerto Rico will be higher than manufacturing tax rates to all other states (and territories) in the union.

One of the elements in this new law that attempts to boost economic development and job creation, is the reduction of income taxes to manufacturing firms. At the present time the tax rate is 35%, and under this new law (at least for the next five years) the rate will be dropped by 3% to 32%. There is no doubt of the threat presented by this new incentive which will raise operational costs in the island to stateside firms, while it makes doing business more attractive in the mainland. This will no doubt hurt investments in expansions, improvements, new factories, and employment.

Even worse, this law also attempts to repatriate from worldwide subsidiaries nearly 300 billion dollars to U.S soil to bring in capital to create economic development and job creation. The law provides for an incentive reduction of income taxes on worldwide repatriated funds from 35% to 5.25% during a "window" of time of one year that could apply to a year before or after the law is signed. This incentive has as a condition that these funds must be invested in United States soil in capital investments and improvements that will create employment in America.

At he present time there are nearly eight hundred million dollars of invested 936 funds in the island’s financial institutions. Funds from 956 corporations, or Controlled Foreign Corporations (CFC’s), which are not required to be registered, are estimated at around 15 billion dollars.

We can easily imagine what will happen to the Puerto Rico economy when over ten billion dollars are siphoned away from the islands financial institutions in a twelve month period- most of it next year in 2005. CFC’s will not be moving funds to or from other worldwide corporations, as they frequently do, as other sister firms will also be taking advantage of the repatriation window. Will this affect the local banking industry? Will it affect credit and lending? Will this affect mortgages and interest rates? You bet it will.

But this is not all, the same law also prohibits that all repatriated funds- even those repatriated from Puerto Rico- cannot be invested back in Puerto Rico to qualify for the repatriation incentive. This is because the Internal Revenue Service considers Puerto Rico as a non domestic territory. We will loose over ten billion dollars from our economy- and the same law prohibits their return back to the island.

All elements in this law- mainly the manufacturing differential of 3% and the repatriation of funds- remove the needed incentives for doing business in Puerto Rico. By penalizing manufacturing profits and reducing the return on investments, this law will hurt the economy and will cost thousands of jobs.

Two years ago Senator John Kerry (D-MA) offered an amendment that would have included Puerto Rico in the 3% manufacturing tax reduction. This amendment did not receive the support of the Government of Puerto Rico and was not accepted. "This is not what we want" was the reply from our resident commissioner according to one of the islands newspapers. The resident commissioner favored his political agenda of "fiscal autonomy" over the welfare of our workmen and their families.


It is also inexcusable that two years ago our resident commissioner requested that Puerto Rico be included for the worldwide repatriation of funds without considering what the elimination of these funds would do to our local economy- even worst the existence of a prohibition to invest these funds back in the island.

Whoever finally wins the elections here in Puerto Rico, the Puerto Rico Government must quickly work with the new congress to develop federal legislation as a "technical correction" bill to correct the omission of Puerto Rico from the manufacturing differential and allow some of the over 300 billion dollars to be invested in Puerto Rico. In addition our government must place strong support for the National Enterprise Zone bill already introduced in Congress. This revolutionary bill attempts to help selected less developed pockets of population (Minimum of 10,000) to help them raise their economic conditions and standards of living closer to the rest of the nation. Puerto Rico will qualify in its entirety and we cannot afford to be left out and fall further behind.

The unfair treatment under this law is the result of our poor representation in Washington and evidence of the lack of fair representation that our island has by not been able to elect a president or members of Congress. With better relations with the United States and a better representation this would have never happened. With better relations with Washington, or with a fair proportional representation as a state of the union, we would have participated in a gigantic plan for economic development and job creation for the benefit of the people of our beloved island.

John A. Regis Jr, President

Puerto Rico-USA Foundation, Inc.

Puerto Rico-USA Foundation, Inc. is a Puerto Rico based organization which attempts to improve relations between Puerto Rico and the United States. This organization has no affiliation whatsoever with a mainland group with a similar name which represents in Washington the interest of multinational corporations operating in Puerto Rico as 936, 30-A and CFC’s.

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback