PROMESA provided Puerto Rico a critical lifeline by furnishing a set of tools to restructure its debt and improve its solvency. But it fell short on providing a long-term solution to address Puerto Rico’s weak economic base. Nevertheless, we are convinced that PROMESA is the first step in a long road to get Puerto Rico economically competitive. A key element that allows us to conclude this is the establishment of a Congressional Task Force, which will draft a report that serves as a blueprint to enact federal statutes that may accomplish this goal. In other words: our work is far from over.
It’s no secret that the road to get Puerto Rico on a strong a sustainable growth will take some time and will be treacherous. PROMESA provides the first avenue for Congress to tackle the root causes of the current economic crisis. We strongly believe that the bipartisan Congressional Task Force, whose members have already been appointed, will lay the groundwork by identifying impediments in current federal laws that hinder economic growth for Puerto Rico. These findings will facilitate changes to eliminate those impediments.
{mosads}To understand the long-term buildup that led to this economic crisis, we must revisit the historical role that the U.S. Congress has had on the Puerto Rican economy. This takes us to the 1996 repeal of Section 936 of the U.S. Internal Revenue Code. Section 936 recognized that Puerto Rico and other U.S. territories should not be treated as if they were foreign countries under the U.S. tax code. After the repeal many thought that the manufacturing industry would move to the mainland. History has proven the opposite. Most of these companies ended up offshoring outside of the United States.
Before PROMESA was enacted, the Commonwealth’s federal affairs and economic development teams, along with partners from the private sector, had formed an alliance to study and develop long-term solutions for Puerto Rico’s path to a sustainable and competitive economic growth. After working together over the last two years, the group crafted a proposal that would reverse the existing strained economic relationship between Puerto Rico and the United States. This proposal would stimulate job creation, incentivize the return of profits to the mainland, increase tax collections and enable us to pay off creditors. Specifically, the proposal would ensure among other things that there would be no net revenue loss to the U.S. Treasury by imposing new limitations on the ability of taxpayers to claim foreign tax credits against the repatriated income, and by mandating a repatriation of earnings currently trapped in Puerto Rico as a result of its treatment as a foreign tax jurisdiction.
The fact remains: Puerto Rico is currently treated as a foreign country within the U.S. Internal Revenue Code. This hinders the Puerto Rican economy by creating barriers to companies that were once established or would like to establish their operation center in the island. A job created in Puerto Rico is a U.S. job. The proposal mentioned above would give the 3.5 million American citizens living in the island a competitive advantage against foreign competitors.
This is not a partisan issue. Stakeholders from across the political spectrum, including think tanks such as the National Taxpayers Union and the Tax Foundation, agree that a pro-economic growth strategy is necessary to solve the fiscal crisis in the long term. This is a path that can redirect Puerto Rico to a sustainable road to prosperity by providing the necessary revenues to address its unsustainable debt.
We welcome and encourage the Congressional Task Force to look into this proposal, which would create 100,000 new jobs and grow the GNP between 0.6% and 1.5% annually as part of the recommendations for Congress. Our federal affairs and economic development teams stand ready and are eager to discuss and further expand our policy proposal that will ultimately put Puerto Rico back on track.
Author: Juan E. Hernández, Executive Director of the Puerto Rico Federal Affairs Administration
The views expressed by authors are their own and not the views of The Hill.