The New York Post has a suggestion for helping Puerto Rico and the rest of the United States. The coronavirus, they say, shows that relying on China as much as we do for drugs is a mistake. They figure restoring the tax breaks for pharma companies in Puerto Rico would kill two birds with one stone, restoring Puerto Rico’s economy while solving the pharmaceuticals problem spotlighted by the coronavirus.
Let’s break that down.
The U.S. needs Puerto Rico for pharmaceuticals
Remember the saline shortage after Hurricane Maria? Saline products were in dangerously short supply across the United States because the manufacturers in Puerto Rico were not able to maintain production.
While the FDA says that there are currently no critical drug shortages, they are monitoring drugs and medical devices sourced in China. There are concerns about disruption of supply chains for many medications and health wearables, since China is often the source for key ingredients.
Senator Tim Kaine referred to the Post article, saying that if “medical supplies are going to be treated as a matter of national security, Puerto Rico is very well prepared for two reasons: it is a pillar of the pharmaceutical industry and it is an economy with a strong manufacturing base.” While Kaine wants to support Puerto Rico’s pharmaceuticals industry, he questions whether tax breaks are the way to go, suggesting worker training programs as another option.
11 of the world’s 20 most popular drugs are produced in Puerto Rico. Pharmaceuticals account for more than half of Puerto Rico’s exports. 70% of those exports go to the States. While unreliable electricity after Hurricane Maria forced some companies to leave, there has also been growth. For example, GlaxoSmithKline will be closing down its Pennsylvania factory and moving to Puerto Rico this year.
Does Puerto Rico need tax tricks?
Section 936 was a special tax deal for corporations. By routing some aspects of their businesses through Puerto Rico, they were able to save billions of dollars in federal taxes. Unfortunately, the corporations just used Section 936 as a tax loophole. They didn’t invest in Puerto Rico.
In fact, pharmaceutical companies, according to a report from the Government Accountability Office, got $2.67 in federal tax breaks for every dollar they paid a worker in Puerto Rico. The federal government could simply have paid worker salaries and gotten considerable savings on the deal. Often, companies just shifted patents to Puerto Rico. Their tax breaks depended only on the amount of income they could ascribe to the territory, not on jobs or buildings or other community investments.
Nor were there real measurable benefits. Citizens for Tax Justice points out that Puerto Rico’s per capita income was just about 30% of that in the states during the Section 936 days, and unemployment was twice as high. The tax breaks simply didn’t benefit Puerto Rico’s economy. They just benefited the pharmaceutical companies.
Supporting Puerto Rico’s pharmaceutical industry
Pharmaceutical companies in Puerto Rico suffered from a lack of reliable electric power. Aid intended to rebuild the Island’s electric grid would make a big difference to pharmaceutical companies in Puerto Rico.
Logistics is also a problem in Puerto Rico. Reliable roads and transportation are essential to the makers of medicines.
Tax credits like the Earned Income Tax Credit could also be helpful. The EITC, a refundable tax credit available in the 50 states but not the territories, has shown that it can lift people out of poverty. The funds from this credit help people transitioning from public assistance to work by giving them cash they can use to repair a car, pay for childcare, or take needed training classes.
As a state, Puerto Rico will automatically have the same federal funding as the 50 states. Residents will be eligible for tax credits like EITC. Infrastructure on the Island will get the same support as infrastructure in the 50 states. Investment will soar, as it has in every territory that became a state. Puerto Rico’s experience and expertise in making medicines and medical devices will not be balanced by an unreliable infrastructure.
Tell your congressional reps that you want to see equality through statehood for Puerto Rico. There is no going back, so join us going forward.