| Samoa Seeks Extension of Section 936
American Samoa’s Delegate to the U.S. House of Representatives this week proposed a 10-year extension of the credit that companies based in the States can take against federal taxes on 40% of their income from established operations in U.S. territories. His proposal, however, would only apply to companies in Samoa.
The credit -- Section 936 of the federal tax code -- expires at the end of 2005. It is used by companies with operations in Samoa and Puerto Rico. The operations in Samoa are two large tuna canneries that account for much of the territory’s private sector and produce a third of the tuna canned under the U.S. flag.
According to a source close to Delegate Eni Faleomavaega (D), the legislation reflects a decision to give up on Puerto Rico Governor Sila Calderon’s ("commonwealth" party/no national party) proposal to replace Sec. 936. Her proposal would permanently exempt from taxation 85-100% of the profits that companies receive from territorial subsidiaries. The amendment to tax code Sec. 956 was sponsored by some members of the last Congress but it is opposed by the chairmen of the Congress’ tax committees and the U.S. Treasury Department.
The Samoa Sec. 936 extension is also said to be backed by the U.S. tuna industry. Like Puerto Rico’s tuna industry, Samoa’s is only marginally profitable and is seriously threatened by foreign competition. Foreign canning faces lower labor and environmental protection costs and is gaining greater access to the U.S. market as trade barriers are being reduced.
The situation contrasts sharply with that of the primary intended beneficiaries of the Sec. 956 amendment: pharmaceutical manufacturers with profitable operations in Puerto Rico that are expanding.
Faleomavaega succeeded in 1996 in exempting companies in the Pacific territories from the provisions of the Sec. 936 sunset that in 2002 limited the amount of the credits that a company could take. He was helped by U.S. Senate Finance Committee Member Orrin Hatch (R-UT), who is a fellow Mormon.
Hatch has been consistently supportive of Puerto Rico investment incentive proposals. Most recently, he agreed to sponsor Calderon’s Sec. 956 amendment, although he later distanced himself from it.
Calderon and World Trade Organization Oppose U. S. Steel Tariffs
The Calderon Administration this week asked the Congress to exempt steel imported into Puerto Rico from customs duties imposed by President Bush last year. At about the same time, the World Trade Organization (WTO) ruled that the tariffs violate international trade rules.
The Bush Administration said that it would appeal the ruling, which was criticized by the senior Democrats on the U.S. Senate Committee on Finance, Max Baucus (MT), and the House Subcommittee on Trade, Sander Levin (MI), U.S. steel producers, and the Steelworkers union.
The Bush tariffs, which range from eight to 30 percent, were criticized as contradicting the administration’s free trade principles. The administration subsequently exempted a quarter of steel imports from the duties.
A 12% duty on small steel rebars is increasing the price of low-cost housing in Puerto Rico by $2,000-$3,000, Resident Commissioner Anibal Acevedo Vila ("commonwealth"/D) told the House Trade Subcommittee. He said that U.S. companies primarily produce larger rebars than are used in Puerto Rico.
According to Acevedo, the tariffs have only increased the U.S. producer share of the Puerto Rico rebar market from less than three percent to less than four percent. "Puerto Rico’s low-income housing market and construction industry should not be penalized for trade remedies designed to protect a U.S. industry that does not and will not supply our demand," he said.
Most Puerto Rico rebar comes from Venezuela. A Venezuelan request for an exemption from the tariff was denied by the Bush Administration earlier this month.
Florida Lawmakers Propose Puerto Rico Statehood Vote
Legislation in support of statehood for Puerto Rico was introduced in both houses of Florida’s legislature this week.
The legislation would call on the Congress to authorize the U.S. citizens of Puerto Rico to vote on joining the Union. It was sponsored by Senate Democratic Leader Ron Klein of Delray Beach and Rep. Bob Henriquez of Tampa.
The two were quoted as saying the issue is important because Puerto Ricans are serving in the U.S. attack on the Iraq dictatorship but do not have voting representation in the election of the president or in the Congress.
Senate Budget Cuts Tax Reductions
The U.S. Senate this week approved a $2.2 trillion budget for the federal government for the fiscal year that begins October 1 that provides for $350 billion in tax cuts over 10 years. The amount of the tax cuts was less than half the $726 billion proposed by President Bush.
The decision was a setback for Bush and the new chairman of the Senate Budget Committee, Don Nickles (R-OK). It could also help create another problem for Calderon’s Sec. 956 amendment. The federal budget would not be able to afford the multi-billion dollar per year proposal.
The Senate action does not resolve the issue. The Senate budget now has to be reconciled with a budget passed by the House that provides for the $726 billion in tax cuts. Then, tax legislation would have to be enacted into law
The budget sets the amount that the tax cuts can total. Tax legislation would detail the actual tax law changes that could be made to make up the amount.
Concern about the cost of the attack on the Iraq regime tipped the balance in favor of the lower amount of tax cuts.
Most of the votes for the lesser cuts were from Democrats. A few Republicans, however, played a critical role, joining with the Democrats. Republicans have a two vote edge over Democrats in the Senate.
The move to reduce the cuts was led by two Democrats, John Breaux (LA) and Baucus, and two Republicans, Olympia Snowe (ME) and George Voinovich (OH). Republicans John McCain (AZ), Lincoln Chafee (RI), and Susan Collins (ME) also played roles in reducing the size of the tax cut.
Republicans have a 24 vote margin in the House, but the number who are skeptical about Bush’s tax cut package is believed to be more than enough to change the plan.
Judges Propose Naming Federal Building for Statehood Patriarch
Puerto Rico’s federal judges have proposed that the Congress and the President name a new federal courthouse in Ponce, PR after former Governor Luis A. Ferre.
Ferre, who is from Ponce, is the patriarch of the territory’s statehood party and its Republican committee. He is also a successful businessman and a philanthropist.
The idea could be well received in the U.S. House and the White House. The chairman of the House Public Works and Transportation Committee, which considers such measures, is Don Young (R-AK), a supporter of statehood for Puerto Rico. In addition, the Bush Administration’s Chief of Staff, Andrew Card, is a Ferre fan. Ferre was close to President Bush’s father, for whom Card also worked.
Moynihan, Active in the Senate on Puerto Rico Issues, Dies
One of the U.S. Senate’s most important leaders on Puerto Rico issues in recent decades died this week. Daniel Patrick Moynihan was a New York Democrat who retired from the Senate in 2000.
Moynihan was particularly active on territorial tax and health care program funding issues as the Chairman or senior Democrat of the Finance Committee. He helped preserve Sec. 936 to a reduced degree in 1993 when President Clinton proposed its replacement by a wage-based credit. Sec. 936 was cut from a 100% credit to a 40% credit and Clinton’s wage credit proposal was expanded to base the credit on capital investments and local tax payments as well. This credit became tax code Sec. 30A.
Later, Moynihan became the Congress’ champion of the 30A credit proposed by Clinton and Puerto Rico Governor Pedro Rossello (statehood/D).
Additionally, he helped Clinton increase the cap on funding for Puerto Rico in the program for health care for the needy, Medicaid, and close the gap between payments to Puerto Rico hospitals in the program for health care for the elderly, Medicare, and payments elsewhere in the nation.
Moynihan’s was a leading and thoughtful voice when the Senate considered legislation to enable Puerto Ricans to choose the territory’s status among statehood, independence, and "commonwealth" options from 1989-91. He urged Clinton to make resolution of the issue a priority early in the president’s term and, later, when the Senate faltered on the issue.
He also was an early and influential voice in urging Clinton to end military training on the Navy’s range on Vieques. He cited his own experience with the training while in the Navy.
Before his election to the Senate, Moynihan, as U.S. Ambassador to the United Nations, led efforts to defeat Cuban sponsored resolutions seeking to reclaim U.N. jurisdiction over Puerto Rico’s status issue. He made the U.S. policy in favor of self-determination for Puerto Ricans clear.
Freely Associated States in Iraq Coalition
The White House this week listed the U.S.’ three ‘freely associated states’ as among its 46-nation "Coalition of the Willing" to remove Saddam Hussein from power in Iraq.
The three nations in free association with the U.S. are the Pacific islands groups of the Federated States of Micronesia and the Republics of the Marshall Islands and Palau. All were part of a territory that the U.S. administered for the United Nations after the U.S. took the islands from Japan during World War Two. A fourth part of the territory opted to become a U.S. territory. It is named the Commonwealth of the Northern Mariana Islands.
The freely associated states are primarily of interest to Puerto Ricans because the name of Puerto Rico’s territorial government in Spanish are words that literally translate as "Free Associated State" in English (although the constitutional convention that picked the name said the words should be translated as "Commonwealth" in English).
They are also of interest because becoming a freely associated state is one of Puerto Rico’s three options for a democratic political status. The others are U.S. Statehood and full independence.
Unlike the U.S. territory of Puerto Rico, the freely associated states are sovereign nations. They have allowed the U.S. to be responsible for their national security (which includes the right to veto international arrangements as well as defined military authority). The U.S. is providing each with substantial assistance for limited period of time. Persons born in the islands are citizens of the states but have free access to the U.S. The states are members of the U.N. and have treaties with other nations.
Puerto Rico is a member of the "Coalition of the Willing" through its national government, the U.S. government.
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