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Press Release


Puerto Rico’s “Surprise” Tax Hike Will Hurt Commonwealth’s Economy, Families, Taxpayer Group Warns

For Immediate Release October 27, 2010
Pete Sepp, (703) 683-5700

(Alexandria, VA) – Shortly following the Puerto Rican government’s whirlwind decision to implement heavy new taxes aimed at manufacturers, Pete Sepp, Executive Vice President of the 362,000-member National Taxpayers Union (NTU) offered the following statement about their negative impact on Puerto Rico and the whole American economy. (NTU has members in all 50 states as well as U.S. territories including the Commonwealth of Puerto Rico.)

“In the space of a few days, Puerto Rico’s leaders have effectively torn apart years of tax policies that have economically benefitted the Commonwealth’s workers and their families. Without warning, solid economic analysis, or input from those affected, policymakers rammed through huge changes to the law that businesses will have to absorb in barely two months.

The truth, of course, is that businesses can’t do any such thing, at least not without severe consequences for their operations. This could entail delaying expansion or hiring plans, shifting investments elsewhere, or even making across-the-board cost reductions that would impact activities in the continental U.S., which has also been battered by a recession. Worse, Puerto Rico may join the sad ranks of places whose arbitrary and punitive tax laws declare them ‘off-limits’ to employers wishing to locate or stay there. Promises to phase out this ‘temporary’ tax hike over five years are not convincing in light of past history. For example, even though part of it no longer applies, the federal government’s excise tax on telephones to help fund the Spanish-American War remains on the books. Meanwhile, leaders in U.S. states coast-to-coast have contradicted themselves by repeatedly extending temporary sales, income, and other taxes.

Governor Fortuno might prefer to keep the spotlight on the billion-dollar-a-year tax relief package he just signed into law, but much of the positive impact that legislation may have had is overshadowed by the six-year, $5.8 billion tax increase that could darken many factories and other businesses providing jobs to Commonwealth residents. The result would be less revenue than anticipated and more structural deficit headaches for public officials, but just as important, fewer economic opportunities for the very people the Governor claims he wishes to help.

Unfortunately, Puerto Rico may have to endure the harsh lessons that governments in the continental U.S. and countries around the world have learned (and can sometimes forget) about tax competition. People, capital, and businesses ‘vote with their feet’ by migrating to more hospitable tax climates. Public officials in the Commonwealth should reverse this tax hike before Puerto Rico – and other parts of our nation – suffer as a result.”

NTU is a nonpartisan, nonprofit citizen organization founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels. Note: additional analyses and commentaries on tax competition and reform are available at www.ntu.org or text “FIGHT” to 67292.