Puerto Rican officials lobby Congress against ‘devastating’ GOP tax measure

Makeshift hospital provides relief for many Puerto Ricans

Disaster Medical Assistance Team helps sick Puerto Ricans get medical help after Hurricane Maria.
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Disaster Medical Assistance Team helps sick Puerto Ricans get medical help after Hurricane Maria.

Puerto Rico is still drowning from Hurricane Maria but it’s already facing its next crisis — a U.S. tax reform bill that island officials fear will devastate the economy.

Puerto Rico Gov. Ricardo Rosselló and Lt. Gov. Luis Rivera Marín will make a final plea on Wednesday to Republican officials, asking them to exempt the U.S. territory from a 20 percent excise tax on goods that American companies import from their overseas subsidiaries.

The measure in the GOP tax bill is designed to stop American companies from avoiding taxes by shifting profits overseas. But it would also apply to Puerto Rico because the island is treated as both a foreign and domestic entity under the U.S. tax code.

It’s a hit that Puerto Rico’s elected officials say the island’s economy cannot take.

“If the U.S. Congress ignores our situation and gives us this mortal blow to our economy, the immediate and direct effect will be Puerto Ricans boarding airplanes,” Rivera Marín told the Miami Herald.

Puerto Rico already was struggling through a deep recession before hurricanes Irma and Maria hit in September. The island’s unemployment rate hovered around 10 percent and the country was $72 billion in debt. Since the storms, thousands of Puerto Ricans have lost their jobs as businesses remain without power and unable to reopen.

Rivera Marín warned that the tax could wipe out the island’s manufacturing sector and a third of the government’s tax revenue, sending thousands more families fleeing to Florida and New York.

Maria will seem like a drizzle

Puerto Rico Lt. Gov. Luis Rivera Marín

Compared to the potential economic damage from the tax reform bill, “Maria will seem like a drizzle,” he said.

Puerto Rico’s Federal Affairs Administration in Washington and Jenniffer González-Colón, the island’s non-voting representative in Congress, have been lobbying lawmakers for weeks to exclude Puerto Rico from the provision.

So far, they’ve failed. The House version of the bill imposes a 20 percent excise tax on goods produced by the offshore subsidiaries of U.S. companies. The Senate version includes more limited taxes, which Puerto Rican officials say would be less damaging but still a serious threat to the island’s economy.

House and Senate negotiators this week will start to hash out a compromise tax plan that can pass both chambers and be sent to President Donald Trump to become law.

Rosselló and Rivera Marín will meet with White House economic advisers and Congressional staffers, Rivera Marín said. Their visit kicks off 10 days of back-to-back visits from Puerto Rican politicians, including local legislators and mayors.

Puerto Rico’s manufacturers are responsible for generating roughly 40 percent of the island’s gross domestic product and officials predict the tax bill would affect more than 200,000 jobs either directly or indirectly linked to manufacturing. The current tax code allows U.S. subsidiaries operating in Puerto Rico to enjoy some of the tax benefits they would get from operating in a foreign country, providing an incentive for manufacturers to set up shop on the island.

“This is supposed to be a reform that saves American jobs but they’re going to kill jobs in Puerto Rico,” Rivera Marín said. If U.S. manufacturers leave the island because of the tax reform, “they’re not going to take the jobs to Michigan, they’re going to take them to Singapore, they’re going to take them to Ireland.”

Businesses are also concerned about the effect of the tax reform bill. Puerto Rico’s Private Sector Coalition, which represents a number of business and industry groups on the island, has been lobbying aggressively in Washington. Most lawmakers have been “receptive” to the business community’s concerns, but have stopped short of committing to exempt Puerto Rico from the excise tax provision, said Ramón Ponte, the head of the island’s certified public accountants association and a member of the coalition.

In late November, Rep. Kevin Brady, chairman of the House Ways and Means Committee, told reporters that the committee was working with González-Colón to address Puerto Rico’s concerns. “We’re continuing to have those discussions with her, and there are a list of options that we’re working through to try to arrive at the best approach,” he said. Brady added that the House had already made two changes to its tax reform bill to help Puerto Rico, but is “looking to do more.”

House Speaker Paul Ryan has also promised to keep Puerto Rico in mind as the House and Senate hash out a final tax reform bill. After the House passed its version in mid-November, Ryan and González-Colón issued a joint statement on tax incentives for Puerto Rico. “It is our intention to make improvements to our tax reform legislation as it relates to Puerto Rico when we go to conference,” the statement read.

Senate Finance Committee Chairman Orrin G. Hatch, a Utah Republican, would not say which possible compromises are under consideration.

Miami Herald Washington correspondent Alex Daugherty contributed to this report

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