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GOP tax bill would crush Puerto Rico's already devastated economy, Governor says

  • GOP tax bills would slap a 20 percent excise tax on goods and services that flow between American businesses with operations in Puerto Rico and their parent companies in the U.S.
  • This would put tens of thousands of U.S. citizens in Puerto Rico out of work and demolish our tax base right as we are trying to rebound from historic storms.
A man walks in a street next to damaged houses in Punta Santiago, in Humacao, in the east of Puerto Rico, on September 27, 2017, one week after the passage of Hurricane Maria.
Hector Retamal | AFP | Getty Images
A man walks in a street next to damaged houses in Punta Santiago, in Humacao, in the east of Puerto Rico, on September 27, 2017, one week after the passage of Hurricane Maria.

Puerto Rico is struggling to rebuild after a series of devastating storms that leveled homes and deprived residents of water and power. The Trump Administration and Congress responded to our urgent initial request by approving vital funds to start the rebuilding process. But now, the current tax bills in Congress could deliver a final catastrophic blow to our economy.

Bills moving through the House and Senate would slap new taxes on goods and services that flow between American businesses with operations in Puerto Rico and their parent companies in the U.S. This 20 percent excise tax was meant to prevent companies from avoiding taxation by shifting profits to other countries, not slow the flow of capital to and from a U.S. territory.

This levy has the potential to destroy those businesses the storms didn't. By applying this 20 percent tax to products made in Puerto Rico, companies with a strong presence on the island would be forced to shutter those operations and decamp for the mainland or, worse, a lower-tax country. This would put tens of thousands of U.S. citizens in Puerto Rico out of work and demolish our tax base right as we are trying to rebound from historic storms.

As an unincorporated territory, Puerto Rico is subject to the will of Congress in federal tax law. Puerto Rico has been included in the U.S. Customs Zone since 1917. For over 50 years, Congress has successfully supported Puerto Rico in the federal tax code as a competitive manufacturing center.

"Applying this 20 percent tax to products made in Puerto Rico would put tens of thousands of U.S. citizens in Puerto Rico out of work and demolish our tax base right as we are trying to rebound from historic storms"

Today, the U.S. territory of Puerto Rico ranks fifth in world pharmaceutical production with over 70 plants. We rank third in biotechnology with over 2 million square feet of plant space. All told, the manufacturing of pharmaceutical products and medical devices represents roughly a third of the entire Puerto Rican economy, according the U.S. Food and Drug Administration.

More broadly, manufacturing is central to Puerto Rico's economy, comprising half of our gross domestic product, a third of our tax base and three-quarters of our exports ($14.5 billion in 2016). Manufacturing employs 75,000 Puerto Ricans in good-paying jobs and another 160,000 people whose jobs depend on the manufacturing sector. This could represent about 25 percent of our workforce. Real people, real jobs. All at risk, unless Congress fixes this poorly constructed new levy.

The House and Senate bills were written to prevent companies from relocating to lower-tax countries or gaming the existing tax code by shifting profits to overseas tax havens. This change runs the risk of hobbling some companies with multi-national supply chains. Aside from an economic catastrophe, applying it to Puerto Rico really makes no sense: Companies that operate in Puerto Rico have chosen to do business in the United States and have created thousands of needed jobs for U.S. citizens residing in Puerto Rico.

Operating costs are higher in Puerto Rico because businesses comply with U.S. laws and regulations, including the minimum wage and environmental and labor rules. By applying base erosion rules to companies in Puerto Rico, Congress would severely undermine Puerto Rico's competitiveness with low-cost foreign jurisdictions.

Congress enacted PROMESA last year to enable Puerto Rico to restore economic health in an orderly process. As congressional leaders said, "PROMESA is not a bailout for Puerto Rico. PROMESA will prevent a bailout by federal taxpayers." By enacting this new levy, tax reform would only make it harder for Puerto Rico to regain its financial and fiscal stability and would only make a bailout more likely.

When our administration took office this year, we implemented a range of difficult measures and adopted a demanding, but achievable, ten-year fiscal plan to achieve economic recovery within about six years. That plan was dependent on preservation of Puerto Rico's manufacturing sector, as well as our tax base.

In the aftermath of those destructive hurricanes, we cannot afford to take a hit from Congress. Congress should not apply the same-base erosion provisions to Puerto Rico they have created to stop companies from shifting profits to overseas tax havens. It would cripple our economy at the moment we are most vulnerable.

Commentary by Ricardo Rosselló, governor of Puerto Rico. Follow him on Twitter @ ricardorossello.

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