Territorial Economic Recovery Act could lessen the United States’ reliance on foreign imports
The COVID-19 pandemic has magnified how the United States’ reliance on foreign imports has become a national security concern and the recently introduced Territorial Economic Recovery Act has proposed a solution. HR 6648 would make the United States territories attractive locations for pharmaceutical and personal protective equipment manufacturers through correcting a harmful piece of tax legislation.
Introduced by Delegate Stacey Plaskett (D) of the US Virgin Islands, the Territorial Economic Recovery Act would exempt all US territories from Global Intangible Low Tax Income (GILTI) which currently places the US territories in the same category as foreign nations. GILTI was introduced as part of the 2017 Tax Cuts and Jobs Act (TCJA) in order to disincentivize companies from moving high-earning intangible assets such as intellectual property to low tax countries. However, this policy has had “unintended” impacts on the territories according to Plaskett.
Plaskett explains that “this bill will place the territories on par with other states here in America” and underscores how “the Virgin Islands is NOT a foreign country.” If passed, the bill will encourage long term investment in the territories which will not only create more jobs but will also bolster the United States Economy.
The bill has already garnered an influential team of supporters such as co-sponsor Representative Nydia Velázquez (D) of New York and former Governor of Puerto Rico and current candidate for resident commissioner of Puerto Rico, Aníbal Acevedo Vilá (PDP, D). Acevedo Vilá believes that the adjustment in tax policy would attract international organizations to invest in the territories and generate the economic development Puerto Rico has been awaiting since the devastation of Hurricane María.
Acevedo Vilá explains that “The measure would revitalize the advanced Puerto Rican manufacturing sector through a competitive differential between Puerto Rico and foreign low-tax countries such as China, India, Ireland and Singapore, our main competitors for vital supply lines for pharmaceutical, biotechnology and manufacturing of medical devices, ” in a letter penned to House Speaker Nancy Pelosi (D) of California, Minority Leader Kevin McCarthy (R) of California, members of Democratic leadership Representative Steny Hoyer (D) of Maryland and Representative Jim Clyburn (D) of South Carolina, as well as Chairman of the Ways and Mean Committee Congressman Richard Neal (D) of Massachusetts and Ranking Minority Member Congressman Kevin Brady (R) of Texas.
The policy harmonizes well with the Trump Administration’s call to “Buy American” and has potential for real bipartisan support. Acevedo Vilá says that he is already in communication with Republican legislators to make this bill a reality.
With trials for a COVID-19 vaccine already seeing substantial success, the passage of HR 6648 would ensure that the United States would not have to import the essential vaccine from political and economic rivals. The bill would also allow for more diversification of the economies of the US territories while also solving a serious national security issue.
In order for foreign companies to qualify for this tax exemption, the company must ensure that “80% or more of the gross income of such corporation was derived from sources within a possession of the United States, and 75% or more of the gross income of such corporation was effectively connected with the active conduct of a trade or business within a possession of the United States” for at least three years.
The Territorial Economic Recovery Act provides the US government a unique opportunity to help jumpstart the economies of the territories while also solving a major and pressing national security issue. The bill has the potential to become a bright spot of bipartisanship in the time of intense gridlock and partyism.