After promising to help Puerto Rico, Republicans in Congress set to pass bill that would destroy local economy
Puerto Rico has received more attention than usual in the mainstream press this year. After the devastating effects of Hurricane Maria left the country in disrepair earlier this year, the territory now stares down another storm, this one manmade: the Tax Cuts and Jobs Act. The latest draft of the bill, passed last friday by Congress’ Conference Committee, has writ a new federal tax into place, casting an ominous shadow over the territory’s economic future.
The new tax, which places a 12.5% transaction cost on all payments and exchanges made between corporations in the mainland US and their offshoots in Puerto Rico. With Puerto Rico’s infrastructure still recovering from Hurricane Maria, the additional charges could not have come at a worse time: the economy was set to have a difficult time being repaired in 2018. Now, it looks as if repair may be too much to hope for.
The tax, which affects intellectual property (patents, design rights, etc.) would significantly reduce the incentive for any company, particularly startups, from venturing into Puerto Rico, due to the amount of their gross annual income that would have to be turned over to the US government. In light of these circumstances, Puerto Rico finds itself in an impossible position: it may soon have to deal with an entrepreneurial brain drain in the midst of recuperating from a devastating natural disaster. This is after Speaker Paul Ryan’s (R) promises “to make improvements to our tax reform legislation as it relates to Puerto Rico when we go to conference.”
As Puerto Rico’s governor Ricardo Rosselló put it earlier this month, before the bill was assured to be passed in its current form, “It means that 49% of our GDP is in grave danger. It means that 63% of our revenues from our companies might be lost and it means that 30% of our overall revenue could be severely hampered.” Earlier this year, when hurricane Maria shut down much of the power grid in Puerto Rico, it looked like it would take the territory months to recover. Now, facing down the looming tax bill, it looks like it could be a matter of years.