New tax legislation presently considered by Congress would disastrously:
1) levy a 20 percent excise tax on goods manufactured by subsidiaries of U.S. corporations in Puerto Rico;
2) tax 12.5 percent of income from intellectual property held by U.S. corporations in Puerto Rico; and
3) stop U.S. corporations operating in Puerto Rico from deducting local Puerto Rico taxes from their Federal tax returns.
These provisions would force U.S. companies operating in Puerto Rico to move to countries with cheaper labor costs, resulting in an estimated loss of 170,000 jobs or close to 20 percent of non-agricultural jobs in Puerto Rico, on top of the more than 32,000 jobs already lost as a result of Hurricane Maria.
Over $2 billion of tax revenues, or about one quarter of Puerto Rico’s tax revenues, would be lost if these U.S. companies leave.
Puerto Rico is part of the U.S. It should be excluded from these and any other changes to the tax code that treat and penalize Puerto Rico as a foreign country.
When Congress decided to phase out Section 936 of the Internal Revenue Code over 100,000 jobs were lost as U.S. corporation moved to cheaper labor markets. The end of Sec. 936 in 2006 catapulted Puerto Rico into a recession that culminated in Puerto Rico’s fiscal crisis and the net loss of over 500,000 Puerto Ricans who migrated to the mainland. Puerto Rico cannot afford to lose more of its talent and tax base.
If Puerto Rico is treated as a foreign country in new tax legislation it will be unable to recover from the ravages of Hurricane Maria, even with a generous Federal disaster assistance package.
In addition, Congress must extend the Child Tax Credit to families of one and two children in Puerto Rico. Currently, families in Puerto Rico pay Federal payroll taxes which can be used to claim the Child Tax Credit if they have 3 children or more. Applying to Puerto Rico the same tax benefit available in the 50 states would help mitigate the economic losses of working families after Hurricane Maria and incentivize families with children to stay on the island.
Congress must allow Puerto Rico residents to claim the Earned Income Tax Credit. This measure will alleviate post-Hurricane Maria poverty by supplementing earned income and providing an incentive for people to join the formal economy as Puerto Rico recovers.