Puerto Rico Ping! Please Freepmail me if you want on or off the list.
Posted on 10/26/2010 6:54:09 AM PDT by Ebenezer
After months of work and anticipation, [Puerto Rico] Gov. [Luis] Fortuño finally unveiled his administration’s comprehensive tax reform.
At the center of the measure is an across-the-board reduction in the individual tax bracket that would result in a 49-percent overall savings in six years. Corporate reductions are slated to reach 30 percent.
The cornerstone of the tax modification is the reduction of the income tax brackets.
People making less than $20,000 would not pay any tax. The bracket of those making $20,001 to $30,000 would be taxed 7 percent. From $30,001 to $70,000, the allocation would be 14 percent.
The upper part of the scale, generating between $70,001 and $125,000, would pay 25 percent. Those making above $125,000 would be taxed 30 percent.
“This is more than just a Tax Reform; this is a new platform to spearhead an economic revival. Enclosed in this document is the most comprehensive tax modification in the history of Puerto Rico,” Fortuño said.
The plan, which is called Más dinero para tu bolsillo (More Money in Your Pocket) would start in December and would last until fiscal 2016.
The announcement came during a special joint session of the Senate and the House of Representatives.
The impact of the reform was projected at $1.2 billion in total gross revenue from tax collections. The bulk of the reform -- $1.040 billion -- would target individuals. Corporations are slated to receive $260 million in tax credits.
The reform would be paid for until 2013, after which a gradual study would be undertaken to identify the effectiveness of the new law and its fiscal impact on the island’s coffers.
If it were deemed productive, the next three years -- 2014 to 2016 -- would be added through a special law.
“More than a tax reform, it’s a way to liberate the economy," Fortuño said. "We will try to get the economy moving again and this is one of the measures we identified as important to move the country forward.”
To back up his claim that the reform is more than overdue, Fortuño cited more than a dozen reports showing that the middle class and business sector have the largest tax burden, while contributing the most to the General Fund.
The main sector touched by the reform is the working force. According to Fortuño, the current tax system does not promote work, entrepreneurial spirit or reward the job performed by non-profit organizations.
“We want to reward the work ethic, the entrepreneurial spirit and success as well as the non-profit organizations that have done great work for the society, at times, more successful than the government,” he said.
As he made the announcement, New Progressive Party legislators and most of the jam packed House balcony section, erupted in applause.
“We could not have carried off this reform if we had not first organized the fiscal situation of the island. We can’t go back to the way the government operates when they spend more than they take in,” Fortuño said.
Maintaining that tone, the governor submitted to the leaders of both legislative chambers an audited report made by the accounting firm Deloitte & Touche that showed that the real cash flow deficit was $4.5 billion and that the government wrote checks for $960 million against insufficient funds.
“Let us not forget the past and the people who placed us in this fiscal hole," he said. "The deficit they presented us was not real; it was $3.2 billion. That figure is three times higher than they claimed. This means that they have been untruthful for the last 22 months,” Fortuño said.
Dismissing the notion that’s there is not time for the legislature to fully analyze the reform, the governor said he is willing to extend the session “as long as it takes in order to implement the reform.”
Apart from the reduction in tax brackets, the first phase of the reform would include an individual tax credit applied to the 2010 income tax year.
For individuals generating between 0-$40,000, the state would grant a 15 percent in tax credit. Those in the $40,001-$100,000 range would receive a 10 percent credit. All those making more than $100,000 would be given a 7 percent break.
This totals $240 million in credits for 2010.
For the corporations, there would be a 7 percent credit conditioned that each company provide the Christmas bonus to all employees.
This provision would cover all corporations, locally-owned or foreign.
Because Puerto Rico has one of the lowest earned-income credit systems in the United States, the new reform will increase that credit from a maximum of $300 to a new high of $600.
The ceiling of recipients with salaries was $20,000. The new ceiling would be $35,000.
According to the Chief Executive, this would add around 217,000 new individuals filing for credits by 2016, pushing the overall level to 547,000. Currently, there are 330,000 using salary credits.
Because he wants to implement the measure as soon as possible, Fortuño ordered Treasury Secretary Carlos Puig to cease any collection of income tax in December.
“I will send [Puig] an executive order not to retain income tax and Christmas bonus allocations in December,” he said.
“We hope that a program like this can attract between 20 and 25 percent of the people who are not currently working within the tax structure,” Fortuño said.
To people over 65, the year 2011 will be fruitful, because they are slated to receive a $400 tax credit.
In 1995, then Gov. Pedro Rosselló signed a tax reform that resulted in a net gain of $ 400 million. In 2006, the implementation of a new round of reforms cost the government around $180 million.
The Chief Executive cited various examples of how the new reform would affect individuals.
According to him, any employee making less than $20,000 in 2009 paid $1,062 in taxes. In 2010, that amount would be reduced to $903 and zero by 2011. By 2016, the individual will receive a $400 tax credit.
Another example he gave was that of a person with a minimum salary of $15,000. In 2009, he paid $619 in total taxes. In 2010, the amount would be reduced to $526 and by 2011 that individual would receive a credit of $248. In 2016 the credit would increase to $498.
Corporations are also getting into the action with Fortuño's announcement that he would slash their tax rate.
The new tax bracket for corporations is as follows: any company generating from 0 to $750,000 in profits would pay a 20-percent tax. From $750,001 to $2.5 million the rate would be 25 percent, and from $2.5 million and above, a fixed 30-percent rate would apply. There would not be a gradual increment.
To monitor the effect of the reform, the government would instruct the Treasury Department, the Office of Budget Management and the Planning Board to certify annually the effect of the reform in the general fund.
The reform contemplates simplifying the tax code by reducing deduction items. Mortgage interest, non-profit donations, student loans, retirement fund allocations and medical equipment purchased are all included in the reform.
The proposal would reduce taxpayer classifications to three: individuals, married couples filing together and married couples filing separately. The governor also announced that the new temporary tax on homes enacted in 2009 will be eliminated by 2012. That was a measure instituted last summer to generate funds to resolve an immediate fiscal problem in the government coffers.
Contributions to non-profit organizations would be 100 percent free of all taxes from $1 to up to 50 percent of the donor's reported net income.
This would add $13 million annually to the non-profit organizations, he said.
Deductions from mortgage interest payments will be capped at 30 percent.
Another topic mentioned was the Voluntary Declaration time. The proposal extends that period through April 15, 2011.
The Declaration is a window for the people who have not paid taxes to enter the system in a special bracket. Those who don’t take advantage of this opportunity will be subject to double penalties and fines.
Other enforcing mechanisms in the governor's announcement were requiring any lending institution to submit information to the Treasury about all loans over $250,000 and making corporate officials criminally responsible to any corporate official who evade paying taxes directly or indirectly.
Fortuño also discussed the impact of the Mi Salud (My Health) care plan.
Since implementing the plan on Oct. 1, a total of 1.3 million people have received their health care card, he announced his intention to include all small businesses and middle-income people in the plan.
In an unexpected announcement, Fortuño said he is willing to place a ceiling on what he called “frivolous” lawsuits against physicians, which, he argued, increase the cost of medical care and force many physicians to emigrate to the United States.
“I want this legislature to include the middle class and small-to medium-sized businesses under Mi Salud. This will give them a new opportunity and I hope that this can be implemented by next January,” he said.
ping
Is this good or bad by PR standards?
Other than the personal tax rates seeming too progressive I can’t say this is a bad plan. Although I don’t know what rates were before.
Since the US seemingly pays their way, I’m surprised they have any tax at all....
We posted the same thing within moments of each other.
Puerto Rico Ping! Please Freepmail me if you want on or off the list.
The current tax rates are quite a bit higher. In fact, the 33% bracket starts at only $50,000, and there is an additional 5% tax for dollars above $75,000 (which is phased out when the taxpayer has paid 33% taxes on all of his income). In addition, there is a temporary surcharge for persons making over $100,000, which is 5% of the amount paid in income taxes (so if you pay $30,000 in income taxes, you need to kick in an additional $1,500).
So this is a good start.
Thumbs up!
No "skin in the game", as it were.
All this is great but EVERYBODY should pay SOMETHING. Everybody should have a dog in the fight.
I say we keep an eye on this tax reform, and if it works, use it as an example of what we could do here on the mainland.
Ya beat me to it. Great minds and all that...
This might be a good model for stateside governments to follow.
Make 124,000 and take home more than someone making 130,000.
Make 124,000 and take home more than someone making 130,000.
Now they should cut their rediculously high sales tax that has made it an expensive vacation destination. (I have cut back on my trips to PR since the sales tax was enacted.)
Sean Hannity just mentioned this in his show.
Sean Hannity just mentioned this in his show.
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