PRMA warns about possible ‘catastrophic’ effects of federal tax reform
The draft bill of the U.S. tax reform being considered in Congress has the potential to “catastrophically impact” the island’s economy, jeopardizing more than 70,000 well- paid jobs and more than 35 percent of the Commonwealth’s budget, Puerto Rico Manufacturers Association President Rodrigo Masses warned Monday.
On Nov. 2, the U.S. House Ways and Means Committee introduced H.R. 1, known as the “Tax Cuts and Jobs Act,” which proposes an overhaul of the U.S. Internal Revenue Code.
The bill seeks to, among other things, attract manufacturing activities to the U.S. to shore up revenue, production and jobs generated by U.S. companies that for mostly tax reasons have kept their operations outside the country.
The provisions that Congress used to promote that outcome are too broad, he said.
By trying to “discourage” manufacturing activities outside the U.S. it also attacks manufacturing activities carried out in Puerto Rico.
“By not taking into account the legal, social and economic reality that Puerto Rico is a jurisdiction fully integrated with the United States and in which these companies are responsible for generating 70,000 direct jobs, some 200,000 indirect jobs, and about 35 percent of the island’s tax revenues, the bill presents a great danger on the local level,” Masses said.
Specifically, Masses noted that Sections 4301 and 4303 of “Tax Cuts and Jobs Act” have the potential to affect Puerto Rico because they require taxation on profits generated outside the U.S. by U.S. companies and they would impose a 20 percent excise tax on purchases that a U.S. affiliate makes from another affiliate operating outside the U.S. mainland.
For about three years before the bill was submitted, the PRMA had spent time lobbying Congress, participating in some 350 meetings with lawmakers to introduce text that exempts operations on American soil from the effect of any provision of a protective nature against foreign activities.
However, on Nov. 9, the committee approved the bill without including language that would provide some protection or relief activities carried out in Puerto Rico, Masses said.
“Our expectation now is that all that time we spent educating will result in changes in the language of the bill over the next seven or eight months it will take for this final phase of the tax reform to be discussed in Congress,” Masses said.
“It appears to be that the issue is not a lack of understanding of the reality of which we have spent years educating Congress, but it makes us think that, quite simply, that to increase their revenues and fund its proposed tax reform, Congress has not actively considered the impact their actions may have on the future of tens of thousands of American jobs in Puerto Rico or of Puerto Rico’s socioeconomic health,” he said.
While the PRMA exposed its concerns in Puerto Rico, Gov. Ricardo Rosselló was in Washington DC presenting the same arguments in Congress.
“We need to protect what has been the backbone of Puerto Rico’s economy in recent years and the main economic sector that remains after the onslaught of Hurricane María: the Puerto Rican industrial base,” Masses said.
“This is not the time, nor is the tax reform the vehicle to change the business model of the past decade. Instead of being concerned about Puerto Rico’s economic survival, we should focus on getting the development and economic growth tools than Congress promised a year ago through section 701 of the Puerto Rico Oversight, Management and Economic Stability Act,” Masses said.
Finally, the head of the PRMA said that any lasting solution to the island’s fiscal and economic crisis has to consider the local impact of initiatives punishing manufacturing outside the U.S. mainland. It also must provide a permanent and local growth-promoting solution.
During the remainder of the week, the PRMA, along with other member organizations of the Private Sector Coalition and government representatives will redouble efforts in Washington D.C. to ensure “that this message is heard, understood and reflected the federal tax reform,” Masses said.