The Final Republican Tax Bill Screws Over Puerto Rico

The GOP plan could cause companies to move jobs off the island.

Jeff Malet/Newscom via ZUMA Press

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.

Puerto Rico Gov. Ricardo Rosselló said Friday that Republicans’ decision to leave a pair of provisions in the tax reform legislation that experts say will hammer Puerto Rico’s already struggling economy was “unconscionable.”

“It is devastating and unconscionable that Congress would do this at this juncture,” Rosselló told NBC News after it was clear the provisions remained in the bill.

Republicans released the latest version of their bill Friday evening and plan to vote it out of the House and Senate early next week. The tax bill, as written, would include taxes on payments between US companies and their foreign subsidiaries and profits from intellectual property. At a Friday news conference in San Juan, Rosselló called the tax reform plan “a huge blow for Puerto Rico,” according to Caribbean Business, and, the paper writes, the bill would have an “adverse impact” on 50 percent of the island’s gross domestic product, 30 percent of the government’s revenue, and 250,000 direct and indirect jobs. 

Rosselló’s administration estimates that recovery from Hurricanes Irma and María will cost roughly $95 billion. The island was already grappling with more than $72 billion in outstanding debt, $49 billion in unfunded pension liabilities, and a 45 percent unemployment rate, the result of a decade-long economic downturn. That crisis had already fueled an exodus of roughly 400,000 people over the last decade, a trend that has only intensified since the hurricanes.

Carlos Mercader, the director of Rosselló’s office in Washington, DC, tells Mother Jones the Republican decision was “shameful” and reflects the island’s lack of status in Washington when big decisions are made. “We’ve had many congressmen coming down to Puerto Rico, visiting the island, being amazed by the incredible devastation,” says Mercader. “They’ve been the most empathetic people in the world. But it’s all words, no actions. When actions need to come, this is what they do.”

In an attempt to make it harder for US companies to avoid US taxes via foreign subsidiaries, the bill would impose a 20 percent excise tax on payments from US companies to their foreign subsidiaries. For tax purposes, the IRS sometimes considers Puerto Rico and the other territories foreign countries. That shift could cause the US pharmaceutical industry, which generates billions of dollars in revenue and employs tens of thousands of workers on the island, to shift production out of Puerto Rico.

According to BloombergPoliticsthe way the current law works allows US companies to buy their own products from Puerto Rican subsidiaries and avoid regular income taxes, and pay just 4 percent in excise tax to the island’s government, as long as the money from that subsidiary is kept offshore. The arrangement has been a “paradise” for US drug makers and, the Food and Drug Administration estimates that drug companies and medical device manufacturers account for nearly 30 percent of the island’s GDP.

Rosselló said Republicans like House Speaker Paul Ryan (R-Wis.) and Sen. Marco Rubio (R-Fla.) “turned a blind eye” on Puerto Rico. “I will be very active and I’m sure my colleagues will be very active, in different Puerto Rican populations or Latino populations and make sure everyone knows we were treated as second-class citizens,” the governor said

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate