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Still picking up the pieces after the devastation of hurricane season, Puerto Rico must also contend with the controversial tax bill currently before Congress. Michael Deibert reports.

When Francisco López surveyed Barranquitas, the mountain town in Puerto Rico of which he has been mayor for two decades, after it was pummelled by Hurricane Maria in September, he was dumbfounded by the destruction he saw.

"Basically, all of the work of five decades has been destroyed," Mr López told a journalist as he arrived on foot, walkie-talkie in hand, at a food distribution center housed in a sports complex. “All the roads have been damaged, six bridges have collapsed, around 1200 homes were destroyed. Communication has basically been cut off… We are working day and night to get back on out feet."

Like many areas of Puerto Rico, Barranquitas depends largely on tourism for its revenue (in its case, mostly internal daytrippers from the capital interested for a taste of the island’s hinterland jibaro culture), and in addition to the immediate physical destruction, the collapse of the island’s power grid rendered life a difficult scramble  When fDi visited the island in November, hundreds of powerlines remained downed and electrical cables were strewn about like confetti. By mid-December, only about 60% of the island had regained power.

Even before the storm struck – prompting tens of thousands of islanders to relocate to the mainland US in its wake – Puerto Rico was on the back foot. The US territory of 3.6 million people was in the process of restructuring its $73bn in public debt, the biggest such restructuring in municipal bond history. More than 300 schools had closed since 2010, forcing nearly 30,000 students into classrooms elsewhere. Even before the hurricane, nearly 450,000 people had left to seek employment in the mainland US over the past decade.

Adding to Puerto Rico’s woes is the highly controversial tax bill, dubbed the Tax Cuts and Jobs Act, currently making its way to a final vote in the US Congress. The bill proposes draconian new taxes on Puerto Rican businesses, which for the purpose of the bill are, bizarrely, considered foreign entities. Among the bill's measures would be a new 12.5% tax on income derived from intangible assets (such as patents and intellectual property). Rodrigo Masses, the president of the Puerto Rico Manufacturers Association, has said said the bill would be "catastrophic” while the the economist Francisco L. Rivera-Batiz has warned the moves “will bring enormous devastation” to the island. The island’s pharmaceutical and medical industries, which generally employ around 250,000 could be dealt a brutal blow. (A proposed 20% excise tax on products manufactured by subsidiaries of US companies on the island that was in the bill’s original version was later dropped.)

One year ago, the eight-member bipartisan group tasked with overseeing the island’s debt restricting concluded in a report to the US Congress that the island’s tax status within the US was complex and untenable and should be addressed to save, what they stressed, were “American” jobs.

In the wake of so much devastation, the US Congress is indeed revisiting that tax policy, though not in the way that many Puerto Ricans and economists would have liked.

This article is sourced from fDi Magazine
fDi Magazine

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