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GOP tax bill 'devastating for Puerto Rico,' San Juan mayor says

The mayor of San Juan, Puerto Rico, has a message for House Republicans: Your tax bill would crus...

Posted: Nov 29, 2017 4:56 PM
Updated: Nov 29, 2017 4:56 PM

The mayor of San Juan, Puerto Rico, has a message for House Republicans: Your tax bill would crush us.

"It's devastating for Puerto Rico," Mayor Carmen Yulin Cruz told CNNMoney on Tuesday. "It would kill any chance we have of putting together a plan for sustained growth that would repopulate the island."

The House GOP bill has a provision that Puerto Rican leaders say amounts to a tax on goods manufactured on the island and exported to the mainland United States.

The bill would apply a 20% excise tax to payments made by companies on the mainland to their subsidiary businesses in Puerto Rico. Companies on the island are already considered foreign corporations, even though they're operating in a U.S. territory and employing Americans.

House Ways and Means Committee Chairman Kevin Brady told reporters on Tuesday that details about how the bill would affect Puerto Rico were still being worked out.

"There are a list of options we're working through to try to arrive at the best approach," he said.

Related: U.S. general leads troops out of Puerto Rico

Puerto Rico is struggling to recover from Hurricane Maria, and only 56% of the island's power is back up and running two months after the storm hit.

Yulin said the timing of the tax plan couldn't be worse.

"You have to wonder, what mind thinks that imposing a tax on goods and services in a economy that's in a coma, it's going to help?" she said. "That is a mind that really does not take into account the needs of the Puerto Rican people."

People were already fleeing Puerto Rico because of an 11-year recession. Many experts say the recession was triggered when Congress killed tax breaks that Puerto Rico offered companies as an incentive to operate subsidiary businesses there.

The damage caused by Maria could exacerbate the departures. The Center for Puerto Rican Studies at Hunter College in New York estimates that as many as 213,000 Puerto Ricans will leave the island because of the hurricane.

That population decline, coupled with the potential tax bill, would make it hard to maintain the island's nearly 70,000 manufacturing jobs. Most of those jobs are in Puerto Rico's pharmaceutical industry. Leaders fear an increased tax burden, on top of the hurricane recovery problems, would cause companies to leave the island.

Related: Puerto Rico kills $300 million contract with Whitefish

Yulin and Puerto Rico Governor Ricardo Rossello don't always see eye to eye on politics, but they do share an opinion on the tax reform.

"If the purpose of this tax reform is to bring back jobs to the United States, one must emphasize that Puerto Rico is part of the United States and because of that the island can't be considered as a foreign jurisdiction," Rossello said in a statement on Monday.

Tax experts aren't sure why Puerto Rico and other U.S. territories are considered foreign countries under the tax code, even though their residents are Americans. Some surmise that the provision in the House tax bill wasn't meant to affect the island.

"Nobody thought about Puerto Rico. ... It's just an accident that the issue is arising," said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

Related: How a month of nightmares changed Puerto Rico

Others believe lawmakers will change the language so Puerto Rico isn't hit hard.

"I don't think there's anyone in Congress that wants to crush Puerto Rico," says Cate Long, an expert on Puerto Rico's debt crisis.

Yulin, the mayor of San Juan, isn't so confident. She praised Democratic leaders like Senators Bernie Sanders and Elizabeth Warren for hearing Puerto Rico's concerns. But the tax bill has been drafted entirely by Republicans.

"The Republican leadership has said, 'We're going to change it, we're going to change it,'" Yulin said. "But it doesn't change. And there's been enough time already to time change it."

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