AAV: Read My Lips, ‘No Sales Tax’

by John Marino

January 21, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. It's a constitutional requirement that the commonwealth government runs a balanced budget, but successive Popular Democratic and New Progressive party administrations have flouted the restriction for years.

While outgoing Calderón administration officials said they were leaving a $550 million deficit, incoming Acevedo Vilá administration officials have placed the figure by as much as double that -- some $1 billion.

Gov. Acevedo Vilá has been circumspect in his criticism, declining to overtly bash his former boss. By contrast, when Sila Calderón entered La Fortaleza in 2001, finding a deficit a bit shy of what she admits to leaving behind, she screamed to high heaven about the "fiscal irresponsibility" of the administration of former Gov. Pedro Rosselló, and indeed went so far as to try to paint the alleged "fiscal chaos" as a criminal act.

Acevedo Vilá now says that it is a new era and all political parties have to come to a consensus regarding reeling in the size of government and undertaking a tax reform.

But these bottom line issues are also the ones that are showing the first signs of straining the new political correctness of reaching across party lines in the aftermath of the razor-close election, which sent the PDP’s Acevedo Vilá to La Fortaleza and delivered to the NPP control of the Legislature, the island’s sole Congressional seat and a majority among island town halls.

Acevedo Vilá proposed a tripartite commission to analyze tax reform and reach a consensus on how the government should proceed. It was another good political move by a governor in a political landscape dominated everywhere but in his own administration by the opposition NPP. It sought both to exert Acevedo Vilá’s authority by positioning him as taking the lead role on the matter, and it meant to impress on the public once again that he is well above partisan politics, not only willing, but able, to work with members of the opposition.

But the two NPP officials invited to sit on the panel – the heads of the House and Senate finance committees – respectfully declined, and with a freshly released $4 million study on tax reform undertaken by the Calderón administration, the panel idea is seeming more and more like a political exercise aimed at delaying action on tax reform and government debt.

Indeed, government fiscal reform is arising in the aftermath of the election as the No. 1 public policy priority.

Police, nurses and teachers are notoriously underpaid, and money is needed to fight crime and improve the island school system. The issue also encompasses other public concerns, such as out-of-control lawmaker perks and government spending.

Acevedo Vilá has pledged to address the government fiscal reform head on, but his campaign pledges and public statements since taking office will likely tie his hands on dealing with the matter.

For one thing, the governor has flat out pledged that there would be no lay-offs of government workers, even though his Budget and Treasury chiefs put the current fiscal year deficit at $1 billion.

But a bigger handicap is the campaign pledges Acevedo Vilá made regarding a proposed sales tax. He demonized NPP support of a sales tax despite a Calderón administration study recommending a consumption-based tax as an integral part of a tax reform, and calls by the CPA association and prominent economists for the same.

During the campaign, Acevedo Vilá said the NPP plan "would punish the middle class and poor in Puerto Rico." At the same time, Calderón was saying the new governor would have the "moral obligation" to accept the recommendations of the $4 million study, while the PDP-controlled Legislature was undertaking its own studies that recommended the implementation of a consumption-based tax.

Without a consumption based tax, there is little chance the government will be able to eliminate the 6.6 percent excise tax on imported goods, tap revenue from the underground economy or roll back income tax rates to provide true justice to those most burdened with financing the commonwealth government – the beleaguered middle class.

So Acevedo Vilá’s campaign pledges are already haunting the freshman governor. NPP Senate Majority Leader Orlando Parga has been particularly articulate on that point, and in leading the charge in criticizing the tax-reform committee plan.

"His position was terribly irresponsible. He turned the matter into an ideological issue, and now he is paying the consequences," Parga told the Associated Press.

"He knew that the House was working on a sales tax proposal. He knew that the Treasury secretary and professional economist and CPA organizations supported the measure," he said in another interview. "But it was much more beneficial for his political aims to instill fear into taxpayers."

The tax panel, Parga says, is a nice pretext for Acevedo Vilá to use in breaking those campaign pledges by accepting its recommendations. NPP Rep. Antonio Silva and Sen. Migadalia Padilla appeared to be saying the same thing by declining the governor’s invitation.

Government fiscal reform depends on Acevedo Vilá breaking his campaign pledges to bar a consumption-based tax, not to mention forgetting frivolous ideas the gubernatorial candidate had floated such as the establishment of income-tax free zones for residents in designated urban centers.

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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