Two in the Bush With 245a
Trust politicians to go into spin mode when facing a crisis such as Puerto Rico’s smothering debt and steep economic decline. One recent example that comes to mind was the local jobs report circulated by the Puerto Rico Labor Department touting unemployment rates that had remained stable at 12.1%.
It is disingenuous to wave that disturbing statistic as a flag of moral victory; one, because it implies we are holding steady and, two, because it is actually much higher when you take into account that our employable universe is shrinking at an alarming rate of 64,000 people outmigrating every year. Make no mistake, our jobs are being created in Florida, Texas and New York—net jobs created in Puerto Rico stood at negative 44,000 in 2016 for a total of 985,000 jobs, a level of employment seen 25 years ago on the island.
As the Financial Oversight & Management Board begins to take shape, there is very little in the way of job creation that we can expect. Observers are hopeful that the Task Force for Economic Development will come up with sufficient measures that can help kickstart Puerto Rico’s economy.
On the task force front, there is much chatter among the island’s political class regarding proposals presented by the private sector, foremost among which is the insertion of Section 245a under Section 245 of the Internal Revenue Code. The incentives contained in 245a offer 85% tax exemption on dividends of United States companies established in Puerto Rico.
During a recent meeting of the Joint Committee on Taxation held in Washington, staffers presented calculations to Puerto Rico lobbyists that put the impact of granting 245a to Puerto Rico at negative $10 billion on the U.S. Treasury. A lobbyist tied to the Democratic Party characterized the meeting as a bad one for Puerto Rico that left the members of the committee with more questions than answers.
Although this newspaper believes 245a could help ignite Puerto Rico’s economy, we do not believe in deluding ourselves by putting all our eggs into a basket of fairy tales if there is no ambiente in Congress to pass the measure. It is precisely that sort of self-deception that got us into this mess in the first place.
Who could forget when Section 936 was targeted for phaseout starting in 1996, and we just went about our business thinking we would find a replacement? We heard the pols and lobbyists back then: “Don’t worry, we will get Section 30A wage credits.”—Never happened.
Instead, with the passing of each year, more jobs were lost; the 40% of Section 936 funds in Puerto Rico’s banks disappeared and we had nothing in its stead. When 2006 rolled around, Puerto Rico’s economy went into a death spiral that has yet to relent. So here comes the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) control board to rescue our good faith and credit. No creo.
Puerto Rico has pressing concerns that pols must address immediately. Front and center is the healthcare cliff—a $1.5 billion funding precipice that hits in 2018 that requires an all-out lobbying effort on Capitol Hill to obtain parity in Medicaid and Medicare funding. In 2014, Medicaid spending in Puerto Rico totaled about $2.8 billion, to which the federal government contributed $1.6 billion, or 57% of the cost. In stark contrast, Mississippi, which has the lowest per-capita income among U.S. states, gets $4.1 billion in Medicaid money from the federal government. Parity in federal funding for healthcare alone would be a huge shot in the arm.
It is time to wake up and deal with the possible; exercises in self-deception in times like these benefit no one.