If Republicans enact tax reform, Puerto Rico’s economy will be destroyed

by Dec 1, 2017Congress, Headlines0 comments

On November 29, Donald J. Trump tweeted a message to his 21.3 million followers and the world: “A vote to CUT TAXES is a vote to PUT AMERICA FIRST,” he claimed. Trump was referring to the Republicans’ “Tax Cuts and Jobs Act,” which is getting closer and closer to passing every day.

The bill has been subject to a flurry of criticism over the course of the last week: Less than one out of 40 economists surveyed by the University of Chicago’s Booth School of Business feel it would substantially benefit the economy, and Tax Policy Center claims the the bill would actually raise taxes on half of all Americans.

There are latent flaws, to be sure. But the reform is turning out to be problematic for the United States’ unincorporated territories, as well. The bill has been modified to include an excise tax, to be made on most payments from domestic corporations to related foreign corporations. This is known as section 4303, and if it is not amended to exclude Puerto Rican corporations its effects could potentially be deadly for the islands’ inhabitants. The reason for this is because, for tax purposes, the US still treats Puerto Rico as a foreign country. If the bill passes, then US corporations with branches in Puerto Rico will face pressure to relocate upon official state soil, or close down entirely.

San Juan Mayor Carmen Yulin Cruz has called the tax bill “devastating…it would kill any chance we have of putting together a plan for sustained growth that would repopulate the island.” Disregarding other issues with the bill, which are manifold — one of the largest being that over the next decade the tax cut has been projected to accrue $1.5 trillion in cost — the damages this would do to the Puerto Rican state and its inhabitants are being largely ignored by mainstream media, with dangerous consequences on the horizon.

There are two ways the tax reform bill might be amended to prevent further economic grief in the territory, which is still recovering from the devastating effects of September’s Hurricane Irma. The first is for the US to begin treating Puerto Rico as domestic; in other words, incorporating it as a territory. This would be a huge win for the statehood movement, as it would pave the way for Puerto Rico to obtain more representation in US government. The second is to strike section 4303 from the docket, costing the United States an as yet unfathomable amount of money in tax revenue. Both options seem highly unlikely, but if Congress is to pass successful, humanitarian tax reform, those are the choices it has. The GOP can leave the bill as is and destroy Puerto Rico’s economy, it can make some painful amendments, or it can incorporate the territory, granting it automatic application of Constitutional rights, and potentially laying the ground for eventual statehood. The choice is in the hands of the Senate and the House.