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Thursday, October 6, 2011

Pierluisi Advocates for Puerto Rico Before the Joint Select Committee on Deficit Reduction

The Resident Commissioner Urges the “Super Committee” to Avoid Cuts to Essential Programs and to Consider the Inclusion of H.R. 3020, the Puerto Rico Investment Promotion Act

WASHINGTON, DC- Resident Commissioner Pedro Pierluisi today formally asked the co-chairs of the Joint Select Committee on Deficit Reduction, known as the Super Committee, to take into consideration certain issues of particular importance to Puerto Rico.

In a letter intended to memorialize detailed discussions that Governor Luis Fortuño and Congressman Pierluisi have already held with Members of the Super Committee, the Resident Commissioner urged the Super Committee to consider the inclusion of H.R. 3020, the Puerto Rico Investment Promotion Act; to avoid cuts to funding that Puerto Rico receives under Medicaid, Medicare, and the Nutrition Assistance Program; and to preserve and reform the rum cover-over program.

“If the Committee proposes measures to create jobs or reform the federal tax code, I ask that it include the language of H.R. 3020, the Puerto Rico Investment Promotion Act. H.R. 3020 seeks to encourage job-creating investment in both Puerto Rico (a U.S. jurisdiction that is home to over 3.7 million American citizens) and the 50 states,” Pierluisi wrote in the letter, which was sent to the Super Committee’s co-chairs, Senator Patty Murray (D-Washington) and Rep. Jeb Hensarling (R-Texas).

The Resident Commissioner explained that most U.S. firms that conduct business in Puerto Rico are organized as controlled foreign corporations, whose earnings are not subject to any federal taxation until they are received as a dividend by the CFC’s U.S. parent. Firms with CFCs in Puerto Rico—like those with CFCs in other jurisdictions—have little incentive to repatriate CFC earnings because those earnings are subject to full federal taxation once received.

H.R. 3020 would authorize companies that are incorporated in Puerto Rico and that earn at least 50% of their income on the Island to operate as domestic U.S. companies. The bill would promote consistency by bringing the treatment of electing Puerto Rico companies in line with the current treatment of individuals in Puerto Rico (under IRC § 933). Specifically, an electing company would be subject to federal taxation on its worldwide income, except on the income it earns in Puerto Rico. As a domestic firm, the Puerto Rico corporation could distribute its earnings to its U.S. parent in the form of a dividend under IRC § 243, which allows the parent to deduct 70, 80 or 100 percent of that dividend, depending on the parent’s ownership stake in the subsidiary.

In the case of Medicaid and Medicare, Pierluisi underscored the fact that Puerto Rico is already treated unequally under these two programs compared to the states, and urged the Super Committee to avoid any action that would “exacerbate the existing inequalities or that would undo the important steps that were recently taken—with bipartisan support—to reduce those disparities.”

“With respect to Medicaid, the federal government pays at least 50 percent of the program’s cost in the wealthiest states and can pay upwards of 80 percent in the poorest states. By contrast, federal law imposes an annual cap on Medicaid funding in the territories, even though they are among the most impoverished U.S. jurisdictions. Historically, Puerto Rico’s cap was so low that the federal government paid less than 20 percent of Medicaid costs on the Island each year,” the letter states.

The Resident Commissioner also urged the Super Committee to follow the lead of President Obama’s bipartisan National Commission on Fiscal Responsibility and to refrain from proposing any cuts to the Supplemental Nutrition Assistance Program (SNAP) or the Nutritional Assistance Program (NAP), a block grant program that has applied in Puerto Rico in lieu of SNAP since the early 1980s. The Food, Conservation, and Energy Act of 2008 directed the U.S. Department of Agriculture’s Food and Nutrition Service to prepare a report evaluating the feasibility and effect of including Puerto Rico in SNAP. “FNS’s report concluded that Puerto Rico’s inclusion in SNAP would mean that over 100,000 additional families on the Island would be able to receive critical anti-hunger assistance. Accordingly, since Puerto Rico is already treated unequally under this food assistance program, I urge the Committee not to take any action that would exacerbate this inequity or otherwise reduce the NAP block grant,” Pierluisi wrote in his letter.

Finally, the Resident Commissioner urged the Super Committee, if it plans to propose the extension of various expiring tax provisions for one or two years, to extend the provision relating to the rum “cover-over” program. Pierluisi also urged the Super Committee to adopt the reforms to the program proposed by him and Senator Robert Menendez (D-NJ), which would impose reasonable limits on the subsidies that the government of Puerto Rico and the government of the U.S. Virgin Islands can provide to their rum producers.

The deadline for the Super Committee to vote on a plan to reduce the deficit is November 23rd.