Keeping the Promise of Prosperity for Puerto Rico

Smart Fiscal Policy Is Key

A Plea to Congress:

3.4 MILLION AMERICANS SHOULD NOT BE AN AFTERTHOUGHT FOR TAX REFORM

Nearly a year has passed since the Puerto Rico Oversight, Management, and Economic Stability Act was signed into law, but Puerto Rico’s economy and its people continue to suffer. Fiscally responsible government on the island and respect for rule of law with the Commonwealth’s debts are vital, but Congress has an indispensable role as well. Pro-growth federal tax policy is needed now; policymakers should keep the following principles in mind as they craft reforms to benefit the nation, especially for Puerto Rico.

1) Plan Early and Think Deliberately About Puerto Rico’s Tax Status. 

Tax-writing Committees in the House and Senate should hold dedicated hearings now on how to rationalize and simplify U.S. tax treatment for Puerto Rico (as well as other territories). This type of forethought will go a long way in creating sustainable and stable tax policy for the long term, rather than last-minute patchwork laws that don’t fit the unique history and regional competitive position of the Commonwealth.

2) Create Tax Reform that “Goes with the Flow.”

PROMESA stipulated that Washington do more to enable the “free flow of capital between possessions of the United States and the rest of the United States” This means designing federal tax laws for Puerto Rico that fit with permanent, structural reforms under contemplation for the rest of the United States – lower tax rates, territoriality, reduced tax penalties on investments for the island, and attractive repatriation plans. For locally-founded businesses, enterprise zones could offer tax and regulatory relief that would make expansion more viable. Both these approaches for multinational and “domestic” companies have bipartisan legislative roots; both should be part of the discussion going forward.

3) Embrace Every Opportunity for Progress. 

Absent comprehensive tax reform, taking steps such as making the Section 199 manufacturing deduction permanent for Puerto Rico, like it is for the rest of the U.S., would allow Congress to demonstrate that help is on the way. Meanwhile, lawmakers on the tax-writing Committees can clarify any plan for border adjustment would be properly designed so as not to discriminate against Puerto Rican goods and services. The White House can help too, by identifying executive orders and IRS regulations that could immediately improve conditions for taxpayers in Puerto Rico.

Economic growth should be a goal that unites everyone concerned with Puerto Rico’s future, whether they’re concerned about equitable tax laws, budget priorities, the political status of the island, or whose debt claim should be paid first. All would benefit greatly from a vibrant economy that increases employment, boosts family income, revitalizes business activity, creates lasting financial resilience, and restores investor confidence. The three principles above are the starting point.

Washington Must Act Decisively to Keep the Promise of Prosperity for Puerto Rico’s Hard-Working People!

Economic growth is vital to addressing so many of Puerto Rico's challenges. Getting there will require smart policy choices in Washington, DC as well as in San Juan. Less burdensome taxes, more transparent government budgets, and sound approaches to resolving debts are all part of the formula. National Taxpayers Union has created this special web page because Americans everywhere, whether on the mainland or in Puerto Rico, can benefit from the solutions discussed here.

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