Friday, October 7, 2011

Remarks by Farrow & Ramirez on H.R.3020

On HR 3020:
The ‘‘Puerto Rico Investment Promotion Act of 2011’’.
HR 3020 -

    The proposed Bill does not provide a SPECIFIC requirement to create jobs with the repatriated profits. Without this provision, the companies will use the funds to increase dividends and buy back their battered stocks, like they did in 2004. The junket of business and political leaders from PR coming to DC will only create jobs in hotels and restaurants here, but will not convince the staff in Congress and US Treasury, who know how the companies make job and investment decisions.

   For statehood supporters, the Bill is a major strategic blunder. What Fortuno should have proposed is the creation in PR of a federal island-wide enterprise zone, and the full incorporation of PR into the federal tax system. A federal enterprise zone in PR will provide tax incentives linked to job creation that Congress and the US Treasury can support. An enterprise zone proposal will also burnish the credentials of statehood supporters in the eyes of members of Congress, who can support this idea for their own distressed districts.

   Seeking a tax holiday ONLY for PR will contribute to the negative image that PR has in Congress and the US Treasury as an opportunistic tax haven who only cares about itself. For Fortuno, who portrays himself as a republican leader with national aspirations, supporting a tax haven only for PR is a major step back. Real statehood leaders don't get fooled into this trap.

   There would not be repatriated profits. The bill would enable what are now considered to be foreign corporations in a u.S. territory to become domestic companies.

   As resident commissioner, Gov. Fortuno did propose a program that would have enabled PR to become an "enterprise zone." As Governor, he convinced the Obama Administration to make PR eligible to become a Growth Zone, its proposal to replace the Empowerment Zones program. 

   The future of Enterprise and Empowerment Zones is in doubt, as is the Growth Zones proposal. The authorization for Enterprise and Empowerment Zones expires this year.

   From a statehood perspective, getting what are now foreign corporations to become domestic U.S. companies is a step forward.

    A literal reading of HR3020 might lead an unsuspecting reader to reach the same conclusion as Farrow's: 

"From a statehood perspective, getting what are now foreign corporations to become domestic U.S. companies is a step forward." 

    But this conclusion would reveal a lack of understanding between the "form" and the "substance" of HR3020. In order to avoid a fruitless exchange with Farrow, I recommend you to read the one-page HR2030 bill, so you can conclude for yourselves who will benefit from it.

The 2nd section of the bill HR3020 is the key:
Section 2 (a) will allow a "qualified Puerto Rico corporation" to make an election to be treated as a "domestic" corporation. Presumably this is a good step for statehood, but hold your breath until you read section (c): "In the case of a qualified Puerto Rico corporation … gross income shall not include income derived from sources within Puerto Rico".

    In other words, HR3020 will EXEMPT from federal income taxes ONLY "qualified Puerto Rico" companies. Of course, no other "domestic corporation" operating in any of the 50 states will enjoy this tax privilege.

   US Treasury and Congressional tax experts will instantly recognize HR3020 as a blatant attempt to reinstate  the Section 936 federal tax exemption that existed for "possessions corporations" before 2006, but this time masked as a change in section 933.

   Farrow does make a good point that Fortuno the resident commissioner supported an enterprise zone bill for Puerto Rico. I wonder why he did not maintained this strategic objective for his administration and told his resident commissioner Pierluisi to introduce a similar bill, instead of HR3020.

   This lack of consistent efforts to support bills that advance statehood shows there is a big difference between introducing bills for short-term political gains and bills that are well-thought and effective to achieve a strategic purpose.

    Bills — like an enterprise zone bill -- that support the strategic objective of statehood should become a permanent tool in the portfolio of Resident Commissioners who come from statehood parties. Enterprise zone bills should be introduced every two years and improved over time. Pierluisi could have taken the mantle of the Fortuno's first enterprise zone bill to build a growing coalition of supporters for statehood.

   The strategic goal of a Resident Commissioner who supports statehood is to build a momentum of support in Congress for Puerto Rico's statehood. An important target is the group of new members of Congress who must continually be convinced that Puerto Rico should be treated like an equal partner in the US Congress, not like a "possession" seeking a special tax exemption that no other state can have, which is the objective of HR3020.