Puerto Rico: Tax Breaks For U.S. Companies Keeps U.S. Citizens Away From Democracy
August 2 - Trisha Marczak
|Supporters of Puerto Rico’s pro-statehood movement cheer the arrival of Governor Pedro Rossello outside status hearings being held in San Juan, Puerto Rico Saturday. (AP Photo/John McConnico)|
(MintPress) — The 3.7 million U.S. citizens of Puerto Rico will pay close attention to American presidential elections in November — their stakes in the game are high. With more than 200,000 of the island’s residents serving in the U.S. armed forces, the emerging victor will take on a new role as their commander in chief. Any policy changes to social security or unemployment could also drastically alter their lives.
Miriam J. Ramirez, a retired physician, is one of many Puerto Rican natives who will be glued to the television Nov. 6, watching the results pour in. A registered Republican, Ramirez has always taken interest in politics — but like the rest of Puerto Rico residents, she’s never had the opportunity to vote, despite holding status as a U.S. citizen.
For the past 30 years, Ramirez has worked vigorously to promote a statehood movement within the island. She’s made countless trips to Washington D.C., and had convinced Republican lawmakers to see it her way — to allow Puerto Rico an opportunity to seek statehood, if the people so choose.
She saw a great deal of success along the way — former President George H. W. Bush held the belief that Puerto Ricans, as U.S. citizens, should be granted the opportunity to choose their own fate. It was a position also held by George W. Bush. Yet now, the Republican platform is likely to change.
If the party does change its way, there could be quite the predicament, as Puerto Ricans are set to vote in November on whether they support a move toward statehood. While the lobbying efforts on behalf of major U.S. corporations that benefit from current loopholes are strongly opposed to the move, Gov. Luis Furtuno of Puerto Rico is encouraged it will pass, and that his citizens will be given the opportunity to fully take part in the democratic process.
With statehood, who stands to lose?
If Puerto Rico were to be granted statehood, U.S. corporations operating on the island would lose.
The island is known as an economic haven for U.S. companies, particularly pharmaceutical corporations. The dramatic tax breaks for U.S. corporations based in Puerto Rico were first introduced in the 1960s as a way to combat poverty on the island. But those involved in the movement for statehood claim that was just an excuse — and they justify it by the numbers.
Now, with U.S. corporations settled into a beneficiary tax system in Puerto Rico, it’s unlikely they’d favor a movement toward statehood, as it would cost these pharmaceutical corporations millions of dollars — and there are plenty of pharmaceuticals that would be concerned. The list of manufacturing operations on the island is a long one, including the likes of Johnson and Johnson, Pfizer, Merck Sharp and Dohme, along with Bristol Myers Squibb.
Under Section 936 of the Internal Revenue Code, businesses operating in Puerto Rico are not permitted to pay taxes on profits earned. While touted by the business community as an incentive to create jobs in Puerto Rico, it has failed to improve the country’s employment rate, which now stands near 18 percent.
“These tax credits are based on profitability, not the number of jobs created,” Ramirez said in a 1993 New York Times letter to the editor — and her tune hasn’t changed since.
With that argument, the tax break is seen as a win-win for the people of Puerto Rico and U.S. corporations, which benefit greatly from the deal. But for those seeking statehood for the island, it’s a barrier to freedom.
“These corporations have political arms to make sure that the politics of the place is favorable to their business,” Ramirez told MintPress. “It’s actually affecting the future, the self determination of 3.5 million U.S. citizens in Puerto Rico.”
The pharmaceutical corporations operating in Puerto Rico aren’t shy about their incentives. On the website for the Pharmaceutical Industry Association of Puerto Rico, a lobby organization representing business operating on the island, the incentives for American companies operating in Puerto Rico is set in plain text.
“Puerto Rico combines a low corporate tax rate with an attractive package of tax credits, exemptions and special deductions,” the website states.
The argument made by pharmaceutical corporations that costs saved in Puerto Rico are eventually passed down to the consumer has been questioned throughout the years. In the 1990s, Sen. Mark Pryor, D-Ark., questioned this notion, claiming there was little evidence that prices are lowered because of outsourcing to Puerto Rico.
In 1993, when the tax break was in danger of being reduced, the pharmaceutical manufacturing industry spent $1.8 million to lobby those in Congress, according to the Chicago Tribune. Their efforts worked to the benefit of the industry, as the tax break was never rolled back.
During that time, a house aide was quoted by the Chicago Tribune as describing the lobbying efforts as “ferocious.”
It seems not much has changed.
The population of Puerto Rico stands at 3.5 million people, with an unemployment rate of 13.8 percent, according to the U.S. Bureau of Labor Statistics. The island is notorious for its poor hourly rates. While it must abide by federal standards, the island itself has a minimum wage of roughly $4.10, according to the Department of Labor. However, rates change dependent on the industry, from $4.25 to $7.25.
And while pharmaceutical companies have promised for decades that the tax loopholes would usher in an era of plentiful job growth in the industry, it hasn’t. With Puerto Rico residents considered U.S. citizens, they’re fully able to pack up and leave, destination America. That’s been the case for 1.5 million residents of the island, made up of only 3.5 million. While the reasons for the exodus are open for speculation, Ramirez claims the answer is pretty simple — the opportunity for work is there, and the ability to be a part of the democratic process is attainable.
An anti-statehood movement?
Following its 2012 Republican caucus, the Iowa Republican Party put forth its new platform, which included a portion dedicated to the statehood of Puerto Rico. In a reversal from previous — and current — Republican platforms, Iowa asserted in Section 7.08, “We oppose statehood for the District of Columbia and Puerto Rico.”
When asked why the Iowa Republican Party adopted this provision on its platform, Spokesperson Megan Stiles told MintPress she was not sure. As Stiles explained, the platform is created from a grassroots level, starting within caucuses. It is eventually voted on by a board, which gives it the rubber stamp of approval.
Ramirez finds Iowa’s sudden change interesting, especially considering it has traditionally been the view of her own Republican party to be somewhat open to Puerto Rico deciding its own future, statehood included. She sees the move in Iowa as a bad sign, one she feels may be representative of what is to come this August at the Republican National Convention, when the official Republican platform is created and approved.
With many trips to Congress in support of a statehood movement, Ramirez also believes the slow move to switch the platform is fueled by lobbyists representing those very businesses that stand to gain, so long as Puerto Rico is not officially a recognized state.
Yet those opposing statehood often pull the language card, claiming a 51st state with a Spanish speaking population would threaten America’s English, an argument heard loud and clear in Puerto Rico, driving fear among those who believe they’ll be forced to give up a piece of their culture in exchange for the right to vote.
Fear in Puerto Rico
In her 20 years of promoting statehood in Puerto Rico, both at the Congressional and local level, Ramirez has seen a common theme: While many would like the ability to vote and be recognized as citizens of the U.S. (a title they already hold), they fear they’ll be forced to abandon their Spanish language.
Many in Puerto Rico already speak English, but Ramirez said rumors are spread that claim those speaking Spanish will be arrested — a claim that is not true.
Yet while many work to inform the public that this is not and will not be the case, it’s a fear that continues to prevail, thanks to a heavily funded lobby machine.
A visit by Rick Santorum, a Republican candidate who ran unsuccessfully for the party’s seat, confirmed the fear of those living on the island. Speaking to a group of Puerto Ricans, Santorum said in March that English would have to be the official language if Puerto Rico were to become a state.
“There are other states with more than one language, like Hawaii, but to be a state of the United States, English must be the principle language,” he said while campaigning.
This set off a fury in Puerto Rico and provided an opportunity for Santorum’s challengers to oppose his stance. In a statement released by Republican frontrunner Mitt Romney’s campaign, it was stated that the candidate promotes Puerto Ricans learning English, but would not require the island to mandate it as a prerequisite to statehood. As of now, English and Spanish are the island’s official languages.
The question now is how he will handle the issue following the Republican National Convention, especially if the pharmaceutical lobby groups are successful in promoting their anti-statehood measures onto the party’s official platform.
The efforts of companies that strongly oppose statehood will also be put to the test in November, when Puerto Ricans will voice their stance in the island’s referendum.
About The Author
Trisha Marczak is a staff writer at Mint Press News. She has worked in Australia with several NGOs, and has experience as a staff writer, reporter and an award-winning editor at various newspapers and magazine publications throughout the Midwest. She is also an award-winning public radio reporter for spot news coverage.
Follow her on Twitter at @TrishaMarczakMP (https://twitter.com/TrishaMarczakMP)