The resident commissioner in Washington, Jenniffer González, believes that a possible federal tax reform could be a chance for Puerto Rico to overcome its serious fiscal and public debt crisis. (horizontal-x3)
The resident commissioner in Washington, Jenniffer González, believes that a possible federal tax reform could be a chance for Puerto Rico to overcome its serious fiscal and public debt crisis. (Archive/GFR)

WASHINGTON - The resident commissioner in Washington, Jenniffer González, believes that a possible federal tax reform could be a chance for Puerto Rico to overcome its serious fiscal and public debt crisis, by means of economic growth measures.

For González, the coming into effect of Tittle III of PROMESA, has made it possible to start ordering an all-encompassing restructuring of Puerto Rico’s public debt, a door opened by Congress to further the economic recovery of the Island.

Now, she trusts that the tax reform that US president, Donald Trump, and the Republican majority in Congress wish to pass before the end of 2017 – which many see as a difficult goal to reach,- may be that second step.

“The United States must create a system that allows US companies to invest, grow, and create jobs and better opportunities for the people of Puerto Rico,” the resident commissioner, said yesterday when opening a forum sponsored by the Congressional Hispanic Leadership Institute (CHLI), educational arm of the Hispanic Republican Conference.

Ahead of the federal tax reform, commissioner González has proposed legislation already that includes some of the recommendations by the now defunct Congressional Working Group for the Economic Development of Puerto Rico that can be added to a tax reform, such as full access by the Island to the child tax credit (CTC) and the continuation of an increase of the federal excise tax on rum imported from Puerto Rico.

Under current federal norms, and due to a technical error, Puerto Rico residents are only eligible to a refund of up to $1,000 of the CTC if they have three or more children dependents, and fill out the federal tax form to request it. 

The full inclusion of Island residents in the CTC could have an impact of $273 million annually.

Though most of the focus in the US is centered on the reduction of brackets for individuals and corporations, in Puerto Rico the big expectation for a tax reform is the possibility that it would provide a window to look for a new mechanism to promote new investment in the Island.

Commissioner González has indicated the proposal she is studying seeks to use the program that enhances tax benefits for investing in economically distressed areas.

But, she also reiterated that it is important that if Congress and the White House were to decide to opt for some initiative to establish a border tax for products manufactured abroad, Puerto Rico – which for some items in the federal tax system is (deemed) foreign,- be considered a domestic jurisdiction.

“We are part of the United States. That (the border tax) should not apply to the Island and products manufactured in the Island,” said González.

During his presentation Republican congressman Carlos Curbelo (Florida) said to have taken before the House Ways and Means Committee, of which is a member, some of commissioner Gonzalez’ proposals. 

However, he avoided going into details as to what the treatment should be for the Island to promote investment in Puerto Rico.

“At this time we are not talking publicly, but it’s already positive that the matter of Puerto Rico should have been presented on and for the professionals working in the committee to know that for at least one of its members it is a priority,” Curbelo told El Nuevo Día, after delivering his remarks.

Puerto Rican Democrat Darren Soto, another of the event’s speakers, said the tax reform should focus on “empowering individuals, as access to CTC would,” as well as other initiatives such as loans to small businessman and farmers. 

The solutions don’t lie necessarily on new tax incentives for US corporations, said congressman Soto, who represents Florida’s 9th district, based in Kissimmee.

Uncertainty  

From the White House and Congress, there are no signs on how to integrate the Island into a federal tax reform.

On the one hand, according to legislative staffers, the remarks by president Donald Trump against a $296 million allocation in Medicaid funds that only mitigate in part the depletion of the $1.2 billion allocated by Obamacare, raise a lot of concern.

But, at the same time that the Office of Management and Budget (OMB) reiterated this week its discontent with the Medicaid allocation for Puerto Rico, noted Peter Sepp, from the “National Taxpayer Union,” that unit acknowledged in its public policy statement on the omnibus spending bill that “any sustainable solution for the terrible fiscal situation of Puerto Rico” requires economic growth measures.

Zepp was part of a discussion panel which followed the remarks by the congress members, during the CHLI event, in a convention hall.

Other panelist participating in the session were Iván Román, advisor of the Puerto Rico Pharmaceutical Industry Association (PIA), and Roxana Cruz Rivera, deputy secretary of the Treasury of Puerto Rico.

When questioned about any new benefit for the repatriation of profits by US companies in the Island, Zepp recalled that in the middle of the debate about PROMESA, the Senate Finance Committee chair, Republican Orrin Hatch (Utah), alluded to the repeal of Section 936 of the Internal Revenue Code when referring to the causes for the economic fall of Puerto Rico.

Deputy secretary Cruz Rivera said, for her part, that although the government of Puerto Rico does not have any specific proposal at this time over a new mechanism to promote investment in the Island, “we don’t see any problems in a special treatment for repatriation.”

But, she highlighted the importance of harmonizing to the extend possible the federal changes with a tax reform in Puerto Rico.

Román said that the debate should not be focused on whether the benefit should be through the US foreign or domestic tax system, but rather on what are the incentives for investing in the Island.

“Puerto Rico needs a tool for economic development,” said Roman, whose industry represents 18,000 direct jobs and over 80,000 indirect jobs.

Román added that “the discussion should focus on what the tool should be for us decision-makers to make sure that we can build on top of a five-decade old platform of knowledge” that the manufacturing sector has had.


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