With the enactment of PROMESA before the congressional recess, Puerto Rico received a critical lifeline: the opportunity to restructure its debt and improve its solvency. While the chance to restructure debt is critical, it addresses only the most short-term of Puerto Rico’s economic and financial crises.
In addition, PROMESA provided another opportunity for Congress to address the root causes of the current crisis and empower Puerto Rico with the tools it needs to return to strong and sustainable growth. A task force of both Republican and Democrat leaders, including Sen. Marco Rubio (R-Fla.) and Rep. Nydia Velazquez (D-N.Y.), has been appointed and charged with the responsibility of identifying impediments in current federal law to the economic growth in Puerto Rico and recommending changes by the end of 2016 to eliminate those impediments. These recommendations could provide a vision, a path forward and a definitive solution to Puerto Rico’s economic and financial troubles.
As this constructive conversation begins, allow me to provide some initial conclusions reached by those closest to the issue.
Over the last two years, the commonwealth’s economic development team has worked together with the Puerto Rico Manufacturers Association and a coalition of the private industry to study and develop long-term, sustainable solutions to Puerto Rico’s economic crisis. This group is convinced that the current economic and financial challenges in Puerto Rico call for long-term solutions based on economic growth.
Therefore, working together, we have crafted a proposal to redress the current unfairness towards Puerto Rico in the U.S. tax code. This proposal, if enacted, would stimulate investment and job creation in Puerto Rico and incentivize the return of tens of millions of dollars held offshore to the mainland U.S.
Our proposal is based on the unquestionable fact that the recessionary period in Puerto Rico — and therefore its amplified debt — is a direct consequence of Congress’ decision to repeal Section 936. The repeal of Section 936 undid an 85-year relationship between the United States and Puerto Rico that 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, the very conditions that our economic structure was designed around – all based on specious reasoning and flawed assumptions that harmed our economy.
When Congress repealed Section 936 there was a belief that the manufacturing industry in Puerto Rico would pick up and move to the mainland. History has shown that belief to be false. Instead, companies packed up and moved to foreign countries, taking all the economic synergies between the mainland and Puerto Rico with them.
In the meantime, Puerto Rico is now treated as if it were a foreign country within the Internal Revenue Code, creating barriers to investment in Puerto Rico and blocking the ability of the U.S. companies still in Puerto Rico to repatriate income back to the mainland where it can be invested. Restoring the historical tax relationship between the United States and Puerto Rico is a critical factor in securing the long-term sustainability of the commonwealth.
This policy is focused on the objective of driving significant new economic activity to Puerto Rico through private investment and job creation. The 3.5 million American citizens living in Puerto Rico should not be put at a competitive disadvantage versus foreign competitors that have snatched thousands of jobs from Puerto Rico and moved them to foreign countries.
Leaders and stakeholders across the political spectrum, including both Democrats and Republicans and major center-right think tanks such as the National Taxpayers Union and the Tax Foundation, agree that a pro-economic growth solution is necessary to solve the fiscal crisis in the long term. There is consensus on the argument that only by driving renewed sources of investment the commonwealth will generate the necessary revenues to address its currently unsustainable debt.
We encourage the Congressional Task Force to review and include this proposal for economic growth as part of the final recommendations that the group will submit to the members of Congress. The members of the economic development team of the commonwealth as well as the representatives of the private sector are eager to discuss and navigate them through the policy changes proposed, changes that would put Puerto Rico back on the road of growth.
Antonio Medina Comas is executive director of Puerto Rico Industrial Development Company.
Correction
The congressional task force report is due by the end of 2016.