IE 11 is not supported. For an optimal experience visit our site on another browser.

Puerto Rico fears loss of jobs under U.S. House tax bill

Some Puerto Rican economists and officials are warning that under the new tax plan, Puerto Rico could lose manufacturers, leading to steep job losses.
Image: A new fault reduces the generation of electricity in P.Rico after hurricane
An employee of the New York company Con Edison works to restore electricity cables damaged by Hurricane Maria, in San Juan Puerto Rico, 16 November 2017. Thais Llorca / EPA

WASHINGTON — As the Republican-controlled House of Representatives passed sweeping tax legislation, several economists and officials in Puerto Rico warned Thursday that the bill, if it becomes law, could devastate a struggling economy further weakened by a hurricane two months ago that nearly flattened the U.S. territory.

Because the IRS considers Puerto Rico a foreign jurisdiction for tax purposes, the island business sector says it could lose as many as 250,000 jobs due to a provision in the House bill that would impose a 20 percent import tax on products manufactured abroad, which would include Puerto Rico.

The provision is misguided, especially at this time, said Federico de Jesús, founder of the Washington-based FDJ Solutions and a former deputy director of the Puerto Rico Federal Affairs Administration, which represents the island government’s interests on the mainland.

“At a time when the island is still recovering from a devastating hurricane that decimated an already fragile economy and infrastructure, now is not the time to punish Puerto Rico further," de Jesús said.

De Jesús, like the economists who spoke on the issue to the island's main newspaper, El Nuevo Día, said that Puerto Rico already saw the negative consequences of changes in the tax code.

"We have seen this movie before. In the 1990s Congress thought it could reduce the deficit and bring jobs to the states by phasing out section 936 of the Internal Revenue Code. Many U.S. manufacturing plants closed in Puerto Rico but went abroad instead, to places like Ireland and Singapore, not Wisconsin or Pennsylvania," de Jesús said. "The U.S. Treasury actually lost revenue, and the U.S. citizens of Puerto Rico lost more than 100,000 jobs.”

He said Congress needs to recognize the unique position of Puerto Rico and ensure that the new taxes it applies to U.S. companies abroad don't apply to Puerto Rico.

Meanwhile, Rep. Nydia Velázquez, D-N.Y., and Senator Elizabeth Warren, D-Mass., sent a letter to the chairman of Puerto Rico’s Financial Oversight and Management Board requesting that the board ask the court overseeing the island’s debt restructuring write off the island’s $73 billion debt obligation, as the legislators consider it to be a major obstacle to Puerto Rico’s full recovery from Hurricane Maria.

“Even President Trump previously suggested we ‘wipe out’ Puerto Rico’s debt. While Puerto Rico was previously suffering from its financial state, the advent of Maria now means that its debt load will prevent the Island from recovering from this once in a generation humanitarian crisis,” Velázquez said in a statement. “It is morally incumbent on the Court to take these factors into account, eliminate this debt and give Puerto Rico a fresh start to rebuild."

Balancing the island's situation with the staggering debt is difficult, though, because Puerto Rico owes money to U.S. bondholders as well as island residents whose pensions are tied in the bonds.