Congressional Economic Reports Will Take Many More Months… House Chairman: House Vote For Non-State Jurisdiction "Constitutional"… Senate Quietly Passes Fighting Cock Ban… Fortuno Argues in Congress Against Lack of Presidential

May 6, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

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Congressional Economic Reports Will Take Many More Months

Two major congressional economic reports concerning Puerto Rico are far from being completed and will take at least most of the year, a source involved with the studies confirmed Wednesday.

The information backed up a statement by Governor Anibal Acevedo Vila ("commonwealth"/D) last week that the reports would not be ready until the fall.

The reports are expected to form the basis for serious legislation on Puerto Rico economic issues. Serious legislation on the issues is not expected to be enacted into law before the reports are completed and considered by the U.S. Senate Finance Committee.

The Republican and Democratic leaders of the Committee, Chairman Charles Grassley (R-IA) and Ranking Democrat Max Baucus (D-MT), requested the studies a year ago in rejecting the proposal of then Governor Sila Calderon and then Resident Commissioner Acevedo Vila for 85-100% exemptions from federal income taxes for profits that manufacturers based in the States received from subsidiaries in Puerto Rico organized as "foreign" corporations. The Committee opposed the proposal and its leaders had found material Calderon and Acevedo submitted in favor of the tax exemptions to be misleading.

For example, although Calderon and Acevedo claimed that Puerto Rico was losing a higher percentage of manufacturing jobs than the States, federal data showed the opposite. Additionally, although Calderon and Acevedo claimed that the insular job losses were due to the phase-out of the 40% tax cut on income from manufacturing in Puerto Rico (Internal Revenue Code Section 936), companies making the most use of the tax cut had invested billions of dollars more in island plants and hired thousands more workers during the phase out.

Puerto Rico’s manufacturing job losses were occurring in operations that would not have benefited from exempting profits from taxes because foreign competition had made them barely -- if at all -- profitable. The territory’s much higher labor costs were the problem.

This problem would have been lessened somewhat by an also being ended tax credit for wages as well as capital investments and local taxes in Puerto Rico (IRC Sec. 30A) but Calderon and Acevedo opposed extension of this tax credit, apparently because it was popularly identified with Calderon’s predecessor and Acevedo’s rival for the governorship, now Senator Pedro Rossello (statehood/D).

Further, Puerto Rico’s manufacturing job losses to foreign locations were occurring in the same industries that were moving jobs from the States overseas, such as clothing assembly and tuna canning.

The first of the reports is being done by the Congress’ Government Accountability Office (GAO). It is examining Puerto Rico’s economy and treatment under federal tax and social programs. This information will be compared to the same factors in the cases of the States and the other territories of the U.S. The report is also looking at Puerto Rico’s tax and other policies and how companies based in the States with manufacturing operations in Puerto Rico responded to the 1996 law that ends the tax cuts on income from Puerto Rico this year.

The second study will be done by the Congress’ Joint Committee on Taxation staff. It will discuss options to address any policy change needs identified by the GAO report.

Grassley and Baucus originally requested the reports by last summer but did not expect the information to be completed until the fall at the earliest. They hoped that by then the Government of Puerto Rico would have given up on its proposal for 85-100% tax exemptions in Puerto Rico manufacturing profits for which it had been unsuccessfully lobbying for three years.

Given the work and information required to complete the wide-ranging reports, however, Committee aides adjusted their expectations for the reports until this spring or summer. They thought that the information could then be used for legislation this fall, probably in conjunction with national tax reform legislation desired by President George W. Bush and others.

Bush’s proposal to reform the Social Security program, however, is likely to delay significant tax reform until next year. The Social Security proposal has proved to be much more controversial -- and much more difficult to pass -- than White House planners had anticipated. In fact, the expectations for passage of the key elements of Bush’s proposal are low.

Tax legislation this year is expected to extend for five years $70 billion in expiring tax cuts initiated earlier in the Bush Administration. The Congress has agreed on a budget for the fiscal year that begins October 1st that would permit an additional $36 billion in tax reductions over five years.

The delay in the Puerto Rico reports -- necessitated by the complexity of the subjects -- is not expected, therefore, to delay legislation to address any needed changes in federal economic policies regarding the territory. Next year looks like a more likely year for the legislation than this one.

House Chairman: House Vote for Non-State Jurisdiction "Constitutional"

U.S. House of Representatives Government Reform Committee Chairman Tom Davis (R-VA) Tuesday introduced a bill to give the District of Columbia a vote in the House, asserting that it was "constitutional."

Davis’ assertion contradicted consistent court rulings literally interpreting the U.S. Constitution to limit voting representation in the Congress to the States.

Davis’ assertion is significant because he chairs the committee that has jurisdiction over DC issues.

It could also major implications for Puerto Rico and the other U.S. territories: If DC can have a vote in the House without becoming a State or obtaining an amendment to the Constitution, can they?

Davis’ assertion, further, raises the questions of whether DC and the territories can have voting representation in the U.S. Senate under their current political status and, in the case of the territories, in the election of the president and vice president of the U.S. DC has voting representation in presidential elections through a constitutional amendment.

Davis' bill is also significant because it has significant Republican support: It was co-sponsored by 11 other members of the House, including 10 Republicans. And it was publicly supported by a trio of prominent former Republican House members: ex-vice-presidential nominee Jack Kemp and high-profile ex-Representatives J.C. Watts and Susan Molinari.

But Davis acknowledged he still needs more Republican support to pass the bill. In an effort to obtain this support, the bill would not affect the balance of power in the House. Since DC would be certain to elect a Democrat, the bill would temporarily add two seats to the 435-member House. One would presumably go to predominantly Republican Utah in addition to the one for DC. The size of the House would be reduced to 435 again after the reapportionment of the House that will follow the 2010 census.

Further, Davis’ assertion was also inconsistent with U.S. Justice Department statements Wednesday rejecting a Puerto Rican suit for the presidential vote. The statements before the Court of Appeals for the First U.S. Circuit contended that the vote could only be obtained by U.S. Statehood or by an amendment to the Constitution.

DC Delegate to the House Eleanor Holmes Norton (D) and 27 other House members and Senator Joseph Lieberman (D-CT) and 12 other Senate members would answer the question of whether DC needs to become a State or obtain a constitutional amendment to also obtain senators with a "No." They have proposed legislation to give DC two senators as well as a representative. Since DC is already treated equally with the States in all other respects, the legislation would make DC a virtual State.

Norton's "No Taxation Without Representation Act" seems geared to making a distinction between the case of DC and the cases of the territories. It emphasizes in the first of its "Findings" that DC residents "are the only Americans who pay Federal income taxes."

In fact, however, territory residents pay the federal income taxes they have been required to pay. In the case of Puerto Rico, this includes federal income taxes on non-local source income.

Norton’s bill is considered even less likely to pass than Davis’.

DC officials, including Norton, praised Davis for sponsoring his bill, although Norton stopped short of supporting it.

House Democratic leaders are leery of Davis’ bill. They fear that Utah’s legislature would use the opportunity to reapportion the State’s congressional districts from three to four to prevent the one Democrat in the delegation from being re-elected.

A third House bill on the subject has been introduced by Rep. Dana Rohrabacher (R-CA). It would consider DC part of Maryland for federal voting purposes. DC would lose its separate votes in the Electoral College that elects the president but it would gain votes in the election of Maryland’s presidential electors and a representative and two senators through Maryland.

A difference between the situation of DC on one hand and those of Puerto Rico and the other U.S. territories on the other is that DC is constitutionally part of the U.S. while Puerto Rico and the four other populated territories of the U.S. are possessions -- rather than parts -- of the country. While DC will remain a part of the nation, Puerto Rico and the other unincorporated territories of the U.S. could be separated from the U.S.

One territory, the Commonwealth of the Philippines, acquired by the U.S. through the Spanish-American War -- when Puerto Rico and the territory of Guam were -- became an independent nation.

Senate Quietly Passes Fighting Cock Ban

The U.S. Senate quietly passed a bill a week ago that would prohibit the use of fighting cocks transported between States and territories.

The ban could pose a blow to Puerto Rico’s cock fighting industry.

The bill would also prohibit transactions involving sharp instruments to be attached to the legs of the birds. It also bans transactions involving dogs or other animals for fighting purposes.

Penalties up to two years imprisonment would be set by the measure.

The bill was approved by the Senate without objection at the request of Majority Leader Bill Frist (R-TN). It was sponsored by Senator John Ensign (R-NV) and 39 other senators, including three with whom Governor Acevedo has close relationships: Edward Kennedy (D-MA), Tom Harkin (D-IA), and Paul Sarbanes (D-MD).

Frist asked for approval of the bill even though it had not been acted upon by the Judiciary Committee to which it had been referred. But the chairman of the committee, Arlen Specter (R-PA), and its senior Democrat, Patrick Leahy (VT), were among the bill’s sponsors.

An identical bill has been introduced in the House of Representatives by Assistant Majority Whip Mark Green (R-WI) and 76 other members. They include two with whom Acevedo has close relations: Robert Menendez (D-NJ) and Michael Honda (D-CA).

Fortuno Argues in Congress Against Lack of Presidential Vote

Puerto Rico’s resident commissioner in the States, Luis Fortuno (statehood/R), argued against the lack of the territory’s representation in the election of the president and the vice president in a House of Representatives speech Tuesday.

His remarks were made on the eve of a hearing in the U.S. First Circuit Court of Appeals on the claim of a Puerto Rico lawyer, Gregorio Igartua-de la Rosa, for the presidential franchise for the territory.

Fortuno said that, "The right to vote for those who govern us is a hallmark of the democratic principles upon which our Nation is founded. Universal and equal suffrage is not only a core value of this Nation’s political system, but has been recognized by the international community as a fundamental civil right."

He pointed out that Puerto Ricans, although U.S. citizens, are "in an indefinite denial" of equality in representation in their national government. The sole representative of the 3.9 million Puerto Ricans in the Congress -- who can only vote in House committees -- also noted that although he supports statehood for the territory, he supported Puerto Ricans choosing their status among all of the alternatives to undemocratic territory status, "be it as a State of the Union, and independent republic, or as a republic associated with the United States."

Joining Igartua in arguing for the court to order the "political branches" of the federal government -- the Congress and the president — to solve the problem were Senate President Kenneth McClintock (statehood/D) and former U.S. Attorney General Dick Thornburgh and the Citizens Educational Foundation. The foundation is a group that advocates for Puerto Ricans choosing the territory’s ultimate status but does not take a position on which democratic status Puerto Rico should have.

The "Washington Update" appears weekly.

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