Mission Of Puerto Rico’s Ohio Office: Public Service To Hispanics… Bush Tax Plan May Affect Puerto Rico Politically As Well As Economically… Runoffs Determine GOP Picks Up Three Seats In House

December 10, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

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Mission Of Puerto Rico’s Ohio Office: Public Service To Hispanics

A "mission" of Governor Calderon’s Ohio office is "to recognize excellence in public service in the Puerto Rican and Hispanic communities."

This was announced last week by the Puerto Rico Federal Affairs Administration (PRFAA), which maintains 13 offices in the States for Calderon, with a headquarters in Washington, DC.

The offices are led by Mari Carmen Aponte, long a lawyer in the Washington area active in the area Hispanic community. Aponte is close to "commonwealth" party gubernatorial candidate Acevedo – who stayed in her home during most of his resident commissioner visits to Washington. She is interested in staying on in the job if Acevedo becomes governor.

Puerto Rican taxpayer dollars pay for PRFAA’s offices. Their functions under Calderon and Aponte have become questionable since –

  • They services mirror those provided by local governments in the States,
  • The Calderon Administration has led the Commonwealth government on a deficit basis (borrowing money for current operations on a longer term basis),
  • Public services in the Commonwealth are inadequate, and
  • Non-Puerto Rican Hispanics served by PRFAA have no connection to the territory.

PRFAA’s announcement of the role of its Ohio office said that the gubernatorial agency as a whole is the "office of the Government of Puerto Rico providing advocacy, community outreach and cultural support services for the Puerto Rican and Hispanic community nationwide."

Under Calderon, PRFAA has provided a wide range of public services to citizens of the States duplicating the functions of their local governments and organizations in the States. The most controversial has been a $6 million-a-year drive to register citizens of the States without regard to heritage to vote in the States.

Aponte has admitted that the drive registered tens of thousands of people with no connection to Puerto Rico.

According to a top elections official of Chicago, Illinois, the drive also included the biggest case of voter registration fraud in the city’s history -- a community that has reportedly had major voter fraud problems in the past. The drive produced some 2,000 phony voters.

PRFAA has also operated a summer camp, assisted organizations in applying for government grants, and taken sides in local ballot propositions, etc.

The agency’s Ohio office fulfilled its mission of recognizing excellence in public service by honoring 19 police officers and some 60 teachers in Lorain, a city that has many residents of Puerto Rican origin.

The awards were presented by the office’s "Senior Community Officer." The mayor of Lorain attended one of two ceremonies and aides to Ohio members of the U.S. Congress attended both.

Bush Tax Plan May Affect Puerto Rico Politically As Well As Economically

President Bush has made it clear that major tax reform will be a top priority of his second term.

Goals currently being discussed by Administration officials could affect Puerto Rico’s fundamental issue -- the territory’s ultimate political status -- as well as its economy.

For individuals, the tentative Bush plan measures would exempt from income taxation interest, dividends, and gains from the increase in the value of investments. For businesses, tax credits for investments would be expanded.

A more extensive change of the current income tax system is, reportedly, not on the agenda. Conservatives had promoted more sweeping ideas of a ‘flat tax’ (a one rate income tax system) or a national sales tax as alternatives to the current, graduated income tax.

With a record federal budget deficit ($413 billion this year alone), Administration officials are said to want the proposal to be ‘revenue neutral’ (not have a substantial impact on the budget). To accomplish this, ending the ability of individuals to deduct the amount of State and local income taxes they pay from the amount of income on which they have to pay federal taxes is being considered. Officials are also thinking about discontinuing the deduction that businesses can take for health insurance payments for employees.

A major expansion of investment tax credits could create an opportunity for Puerto Rico and other U.S. territories to obtain new economic assistance. The longtime special incentive for investment in territories, Section 936 of the federal Internal Revenue Code (IRC), expires at the end of 2005. Sec. 936 provides a credit against 40% of the tax on profits that manufacturers based in the States attribute to territorial operations.

Over 99% of Sec. 936 credits have been taken by companies that attribute income to Puerto Rico, but the tax benefit is also important to a large tuna canning operation that is a major employer in the territory of American Samoa, an island group in a remote area of the South Pacific with little private sector.

There has been willingness in the Congress over the past four years to consider a replacement of Sec. 936 to help the economies of Samoa as well as Puerto Rico. It did not translate into the enactment of a law, however, because of the insistence of Puerto Rico Governor Sila Calderon ("commonwealth" party/no national party) and Resident Commissioner Anibal Acevedo Vila on an amendment to IRC Sec. 956. The amendment would have exempted from taxation 85-100% of profits that companies receive from manufacturing subsidiaries in U.S. territories organized as foreign entities.

The amendment was rejected despite a lobbying effort led by Calderon and Acevedo that cost tens of millions of dollars.

The effort prompted the leaders of the Senate Finance Committee, Ranking Democrat Max Baucus (MT) and Chairman Charges Grassley (IA), to commission studies designed to help the committee determine whether Puerto Rico needs further federal economic assistance and to identify alternatives to the unacceptable Sec. 956 amendment. The studies are being conducted by the Congress’ Government Accountability Office and Joint Committee on Taxation.

One of the alternatives that the studies are to consider is an extension of the other existing special investment incentive for Puerto Rico, a tax credit provided by IRC Sec. 30A. This credit is given for companies’ spending on wages, local taxes, and investments in plants and equipment in the territory.

In light of the federal deficit, cost will work against a substantial extension of the Sec. 30A incentive, however.

Proposals for Puerto Rica’s inclusion in national programs providing tax benefits for investments in low-income communities would have a better chance of approval now, according to an observer. An example of such programs is Enterprise Zones.

Acevedo’s rival for the governorship, former Governor Pedro Rossello (statehood/D), and Acevedo’s elected successor as resident commissioner, Republican National Committee Member Luis Fortuno (statehood/R), support Puerto Rico’s inclusion in the Enterprise Zones program as well as a Sec. 30A extension.

Acevedo, like Calderon, does not. The two worked against extending Sec. 30A – including in 2001, when a federal budget surplus made cost a minor issue.

Other options for new economic assistance to Puerto Rico and other territories include more equal treatment in federal social programs, including refunds of Social Security and Medicare taxes to low-income workers.

A Bush proposal to end the deductibility of State and local tax payments from income subject to federal taxation could create a complication for the goal of U.S. Statehood in Puerto Rico. The deductibility lowers the tax burden for individuals.

Puerto Rico’s territorial government is already very reliant on income taxes in comparison to the existing States. However, three-fifths of Puerto Rico’s population would not owe federal income taxes if Puerto Rico income were taxed by the federal government -- a fact that would lessen the adverse impact of ending deductibility.

Bush’s tax plan is in just the embryonic stages. It is to be developed further by an advisory group and, then, by the secretary of the Treasury. Initial steps toward it are expected to be taken next week, when Bush conducts an economic forum.

A White House aide recently said that the president would issue an executive order this month establishing the advisory group. The panel will look at tax reform options, she said, and hold public hearings as well as consult with members of the Congress.

Bush’s tax plan is expected to take much of 2005 to develop. The schedule would mean that much of its consideration in the Congress would take place in the congressional election year of 2006. Officials think that this would give the plan added political muscle since they see the reform as being popular.

The schedule for the Senate Finance Committee studies on Puerto Rico economic issues fits in nicely with the schedule for the Bush tax plan. The Senate committee could hold hearings on any options for new economic assistance to Puerto Rico next summer or fall, in time for options to be included in the national tax reform package.

Administration strategists also figure that seeking approval of the income tax reform in 2006 would give them 2005 to obtain the approval of another Bush second term economic priority: reform of the Social Security system.

Bush’s Social Security reform would enable individuals to put some of their Social Security deductions in investments such as corporate stocks.

The personal savings accounts would be available to younger workers and be accompanied by a cut in traditional Social Security checks for the retirees in the distant future. Bush says his plan will not include benefit cuts for current retirees or retirees of the near-future.

This week, he also ruled out increasing Social Security taxes. Democrats assert either that Bush’s personal savings accounts would require Social Security taxes would to be raised or benefits to be cut. The transition to the new system is estimated to cost $2 trillion. This amount is on top of a current long-term estimated shortfall in the Social Security Trust Fund of $10.4 trillion.

The deficit has convinced some Republicans that Social Security taxes should be raised. One way of doing this would be to raise the cap on the amount of income subject to Social Security taxes. The amount is $87,900 this year and will be $90,000 next year.

Bush’s third second-term economic priority is restricting individual and group lawsuits for matters such as product liability and medical malpractice. The goal will be to reduce both the number of suits and amounts of awards to successful plaintiffs. The awards are considered to have driven up the cost of services and products and limited services such as health care.

Reform of the nation’s immigration system is said to be fourth, economically-related top domestic policy objective of Bush’s second term. The reform would both establish a new ‘guest’ worker program to supply low-cost labor as well as tighten enforcement for security reasons.

The economic initiatives are a part of an increased focus on domestic issues that is expected to be a hallmark of Bush’s second-term. Administration strategists want to shift the focus of the Administration from foreign policy, which has dominated Bush’s first term.

Runoffs Determine GOP Picks Up Three Seats In House

Runoff elections in Louisiana for two seats in the U.S. House of Representatives this past Saturday determined the final composition of the House in the 109th Congress. Republicans will hold 232 of the 435 full-voting seats, Democrats 202. Another seat is held by a Socialist from Vermont who votes with the Democrats.

The results represent a three seat gain for the Republicans -- and a three seat loss for the Democrats -- from the current Congress.

In addition to 435 representatives, the House currently includes four delegates -- three from territories and one from the District of Columbia -- and Puerto Rico’s resident commissioner.

The 109th Congress’ Senate will have 55 Republicans, 44 Democrats, and an independent from Vermont who votes with the Democrats.

Gubernatorial Recount Results in Washington

A hand recount of voters for governor in the State of Washington began Thursday, December 9th. As of this writing Friday -- with 100,000 of the 2,745,000 ballots counted, the winner of the initial count and a machine recount had picked up two votes.

Republican Dino Rossi, a former State senator, wound up with 42 more votes than Democratic Attorney General Christine Gregoire in the machine recount.

The hand recount is expected to be completed a few days before Christmas.

Like the recount in Puerto Rico’s gubernatorial election, both sides in Washington have taken to the courts on recount issues. Neither side in Washington’s recount, however, has resorted to the level of personal attacks that have marked Puerto Rico’s recount even though the results in Washington are much closer than in Puerto Rico.

The "Washington Update" appears weekly.

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