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Tuesday, February 14, 2012

As Requested by Pierluisi, White House Budget Request Includes Puerto Rico in Tax Proposals Designed to Encourage U.S. Companies to Create American Jobs


Washington, DC - President Obama transmitted his Fiscal Year 2013 budget request to Congress yesterday. Heeding Resident Commissioner Pedro Pierluisi’s call, the budget request includes Puerto Rico in the various tax proposals put forward to strengthen the economy, support manufacturing, and create American jobs.

“Once again, the Obama Administration has shown that it understands the needs of Puerto Rico and that it is receptive to our message that Puerto Rico jobs are American jobs. I thank the President for including us in his proposals, and I will work with my colleagues in Congress to seek their enactment into law,” said Pierluisi.

The inclusion of Puerto Rico in these proposals is the result of weeks of coordinated efforts that the Resident Commissioner has taken with Governor Luis Fortuño, which included letters to the White House and meetings with key Administration officials. Last week, the Resident Commissioner spoke with President Obama’s senior economic advisor, Jason Furman. During that conversation, Furman pledged to Pierluisi that Puerto Rico and the other territories would be fully and fairly included in the Administration’s forthcoming tax proposals.

Three main tax proposals were unveiled yesterday, all of which treat Puerto Rico and the other territories equally to the states. First, the Administration has proposed a new tax credit for 2012, aimed primarily at small businesses, that would give employers who hire new workers or increase wages for existing workers a tax credit equal to 10% of up to $5 million in new wages paid—that is, up to $500,000 per company. Employers in Puerto Rico and the other territories are expressly included in this proposal. In Puerto Rico, Hacienda would provide the credit through its local tax system and get reimbursed by the U.S. Treasury Department.

Second, the Administration has proposed providing a tax credit to companies who move business operations to this country from abroad. Specifically, companies would get a credit against income taxes equal to 20% of the expenses paid to “insource” a U.S. trade or business. Insourcing is defined as eliminating or reducing a business conducted outside of the U.S. and expanding, starting up, or moving the business to the U.S. to the extent that this results in creating U.S. jobs. Under this proposal, Puerto Rico would be considered part of the U.S. and companies that relocate to Puerto Rico from abroad could claim the credit.

Third, the Administration proposed a new “Manufacturing Communities Tax Credit” to encourage investment in communities that have suffered a substantial job loss event, like a plant or base closure. In the case of Puerto Rico, these credits would presumably be allocated to the Department of Economic Development and Commerce (DDEC), which in turn would provide them to companies who invest in areas of the Island that have experienced major job losses.

As soon as the Administration stated publicly that it would be unveiling new tax proposals, Pierluisi worked to ensure that the territories would be included, urging the Administration to bear in mind the unique tax systems that apply in the territories and to build upon the Administration’s strong and consistent record of including the U.S. territories in initiatives designed to strengthen the national economy and reduce unemployment.