PROMESA created a fiscal oversight board designed to help Puerto Rico deal with creditors and the $70 billion plus of current debt. PROMESA also created a task force designed to help Puerto Rico come up with sustainable plans for economic growth.
Like many other organizations, the Puerto Rico Statehood Council has submitted recommendations to the task force.
You can read all the recommendations by clicking through the link above.
The recommendations are based on three important principles.
- First, they are designed to create jobs and economic opportunity in Puerto Rico for people living in Puerto Rico and businesses actually employing people on the Island. Too many of the plans that have been suggested and even implemented in the past have mostly benefited major corporations, rather than the people of Puerto Rico.
- Second, they take advantage of current U.S. laws that are already benefiting other places in the United States. There is no need to reinvent the wheel when just extending current programs to Puerto Rico will be more efficient and equally effective.
- Third, they are compatible with the “Tax Reform Blueprint” that the current U.S. Congress released in June. We believe that cooperating with Washington will work better than offering plans that might be rejected because they are incompatible with this blueprint.
The recommendations are all practical and realistic.
First, Puerto Rico should be designated as an Empowerment Zone for a set period of 10 years, regardless of any change in the status of Puerto Rico during the ten-year period. After that time, any areas of Puerto Rico which would be eligible for Empowerment Zone status should continue to be designated as Empowerment Zones.
Empowerment Zones offer businesses some valuable incentives:
- Lower tax rate: During the period in which Puerto Rico is a statutorily designated Empowered Zone, 20% tax rate for both corporations and passthrough entities on Puerto Rico-sourced earnings.
- Employment tax credits for new hires. These credits will be highest at the beginning of the Empowerment Zone status and will be lessened toward the end of the area’s eligibility. This encourages actually hiring people in Puerto Rico, rather than sheltering profits on the Island without increasing jobs. It also encourages continuing to hire new people, without discouraging keeping workers employed.
- Research and development credits will increase, to encourage innovation.
- New markets tax credits (NMTC) will encourage private investment in business in Puerto Rico even while it might be difficult for companies to gain funding, or building businesses might require larger investments in infrastructure and logistics.
- Expensing will reduce tax paid on the costs of starting up or growing a business.
- Zero capital gains tax rate will benefit businesses that invest in Puerto Rico Empowerment Zone business assets and keep those businesses going for at least 5 years.
- Encouragement of Infrastructure Investment will encourage investment in infrastructure projects on the island as an additional means of job creation and economic growth.
Another recommendation is to provide personal tax incentives for individuals who invest in Puerto Rico — again, only if they hold onto those investments for 5 years or establish residency in Puerto Rico for 5 years. This will reduce the temptation for investors to manipulate Puerto Rico investments, and will benefit serious long-term investors.
Section 199 of the U.S. tax code, which encourages manufacturing activities throughout the United States, currently applies to manufacturing activity in Puerto Rico. Without action, Section 199’s application to Puerto Rico will expire at the end of this year. Section 199 should apply to Puerto Rico just as it does to the 50 States. PRSC recommends that this be made a permanent part of the tax code.
The Earned Income Tax Credit, which helps lift working families out of poverty while encouraging employment, applies in all 50 States, but not in Puerto Rico. PRSC recommends that the EITC be extended to Puerto Rico.
These recommendations will benefit Puerto Rico while it is a territory, and will continue to benefit Puerto Rico as a State. Statehood will still be needed to give Puerto Rico full citizenship rights and full participation in the democratic process, but the recommendations listed above will help even out the inequalities which have led to Puerto Rico’s current debt crisis.