Puerto Rico’s governor is warning that the sweeping tax plan passed by congressional Republicans on Wednesday could deliver a “crippling blow” to the island’s already-fragile economy, still reeling from the effects of major hurricanes.
Gov. Ricardo Rosselló (D) is calling on lawmakers to rewrite a key part of the tax bill that he says might cause the island’s hefty manufacturing sector to contract, jeopardizing hundreds of thousands of jobs. Supporters of the tax bill who track Puerto Rico’s concerns closely said they are hoping to make minor changes to the new law — but that the new business tax is likely to survive.
The tax bill passed overwhelmingly in the House on Wednesday includes a new 12.5 percent tax on profits derived from intellectual property held by foreign companies — a move designed to compel those companies to move back to the United States. Puerto Rico is considered part of the United States in all realms except taxes — meaning that island residents don’t pay federal income taxes but do pay into Social Security. Companies based on the island are treated as if they were located in other Caribbean tax havens not under an American flag.
Given its status as a U.S. territory, “Puerto Rico is not a foreign tax haven,” Rosselló said in a letter to top lawmakers Tuesday, adding that changing the island’s tax status to treat it like the rest of the United States “makes common sense.”
The new tax “is a big hit, and Puerto Rico both fiscally and economically is downtrodden, and this is the last thing they need,” said Federico de Jesus, a former Puerto Rico government official who has been tracking congressional relief efforts for the island.
Rep. Nydia M. Velázquez (D-N.Y.) said that the new tax “will visit another Hurricane on Puerto Rico — an economic hurricane.”
Velazquez, who represents parts of Brooklyn but was born in Puerto Rico, said that the change continues an “awful tradition” of Congress undermining the island’s economy and that the tax could cost Puerto Rico more than 200,000 jobs “at exactly the time when the Island needs all the help it can get.”
The island’s top advocates also complained that the tax bill failed to apply a new $2,000 child tax credit to Puerto Rico residents.
Sen. Marco Rubio (R-Fla.), who pushed for the more generous tax credit, said he was “really disappointed” that “a glitch in the law” failed to apply it to the island.
“I think we can fix that, and potentially very soon,” Rubio said Wednesday.
A spokeswoman for Rep. Carlos Curbelo (R-Fla.), a member of the tax-writing Ways and Means Committee who represents the South Florida congressional district closest to Puerto Rico, said he is also pushing to apply the child tax credit to Puerto Rico taxpayers in a bill that is likely to be introduced early next year to make other minor changes to the new tax laws.
Curbelo also pushed for Puerto Rico’s ability to apply for “opportunity zone” tax breaks, designed to spur investment in economically depressed areas.
"There are a few provisions in the tax bill that Carlos did not agree with and others that he felt should have been included," Curbelo spokeswoman Joanna Rodriguez said in an email."The good news is there will be opportunities in the near future to make corrections to and strengthen the tax code."
Rubio said he is also concerned about the potentially adverse effect of the new tax but said it is better than the original House-passed proposal that would have enacted an even higher tax rate. Rubio dismissed Rosselló’s concerns about adverse effects on Puerto Rico’s manufacturing sector.
“We’ve not heard from a single company, and in fact, every one of these entities involved in Puerto Rico has told us they’re in favor of the tax bill,” Rubio said in an year-end interview with reporters. “And a few have told us — especially on the pharmaceutical side — that their general sense of it is that moving would make no sense, because it’s not clear that there’s any other jurisdiction in the world that’s more advantageous logistically and from a tax perspective.”
Pharmaceutical companies employ roughly 90,000 Puerto Rico residents.
"The bigger threat to the industrial base is the lack of electricity, and its long-term status is also something of concern," Rubio said.
In coming days, Congress is set to consider a roughly $81 billion plan to respond to this year's hurricanes and wildfires in California, Florida, Louisiana, Texas, Puerto Rico and the U.S. Virgin Islands — legislation that would amount to the single largest emergency spending bill since 2009's supplemental funding for the war on terrorism.
Supporters say that the new disaster relief bill doesn't go far enough for Puerto Rico.
Curbelo spokeswoman Joanna Rodriguez , who represents the state with the largest mainland Puerto Rican population, said this week that the proposal "is a step in the right direction but not good enough."