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Island of Influence

U.S. corporate tax breaks appeal to the commonwealth.

by Suzanne Herel with Rachel Burstein

#33 Dr. Richard Machado Gonzalez, Bayamón, Puerto Rico. Party: D. $262,100 total contributions.

View Gonzalez’ itemized contributions.

To dance with donors, a candidate must know when to lead and when to follow. Doing the hustle with Puerto Rican interests during the past two years, President Clinton has proved deft at both.

Although Puerto Rico residents can’t vote in U.S. elections, they can make campaign contributions. After the infamous White House kaffeeklatsches, for example, one of the largest contributions — $200,000 — came from Puerto Rican hospital executive Dr. Richard Machado Gonzalez. Puerto Rican attorney Miguel Lausell (#198) reportedly raised some $2 million for the Democrats.

What might these contributors have wanted? Forget the perennial question of Puerto Rican statehood. The most important issue has been tax breaks for U.S. companies operating there. Since 1976, American firms have not had to pay taxes on profits earned from their Puerto Rican concerns. And in 1993, Congress added a tax credit for the wages they pay Puerto Rican laborers.

In 1993, Clinton supported a repeal of both credits. But, after opening up the White House to top Puerto Rican donors, the president seemed to spin away from his earlier position. Then he appeared to spin back again. Against a backdrop of coffees and slumber parties, donors paid for each twirl. Take a look, but don’t get dizzy:

September 14, 1995 House Ways and Means Chairman Bill Archer (R-Texas) proposes eliminating both credits. U.S. companies in Puerto Rico would lose $3 billion, and the commonwealth could lose 100,000 jobs.
November 2 Puerto Rican Gov. Pedro Rossello takes out a full-page ad in the Washington Post supporting the repeal of the profit credit, but seeking an aid package to compensate. His idea: Keep just the wage credit.
November 3 Seeking support for the profit credit, Gonzalez and Lausell send the DNC $300,000.
November 9 Gonzalez and Lausell have coffee with Clinton. Joining them is Greg Cortes (who gave $27,000), head of a trade consulting group. (Cortes would later draw scrutiny for dropping out of sight after trying to foot a DNC hotel tab during the Chicago convention; he failed to verify that his donor sources were not from abroad, and the party decided to pay the bill itself.)
December 5 At a Miami conference, Treasury Undersecretary Lawrence Summers announces that the president will oppose provisions of the repeal that would worsen unemployment on the island.
December 6 The proposed repeal dies, struck down as part of Clinton’s budget veto.
May 14, 1996 Archer reintroduces the repeal as part of the minimum wage increase bill.
June 18 While Congress debates the bill, Lausell and Gonzalez catch another coffee with Clinton. The very next day, Gonzalez donates $50,000 to the DNC.
August 20 Clinton signs the minimum wage bill, which includes a provision phasing out both credits over 10 years.
February 1-4, 1997 During the National Governors Conference, Rossello and his wife are invited to spend the night in the Lincoln Bedroom.
February 25 Rossello meets in Washington with more than a dozen CEOs affected by the tax credit repeal to garner support for a bill that will retain the wage credit. Puerto Rico lobbyist Stanton Anderson says the president’s support is assured.