Trump’s tax bill could ‘devastate’ Puerto Rican economy

The Trump administration’s signature tax reforms could result in more of Puerto Rico’s pharmaceutical industry leaving the island and taking leading researchers with it.

This warning comes from two researchers, as the Senate and House of Representatives continue to negotiate an agreed version of the Tax Cuts and Jobs Act.

The act includes a provision to increase taxes on imports to the United States, which the administration hopes will persuade companies to relocate overseas manufacturing back to America. However, goods that are manufactured in the US also often include imported products, which means that an additional tax risks making such products less competitive in domestic and international markets.

Manuel E Diaz Rios, an associate professor at the Institute of Neurobiology at the University of Puerto Rico, says the tax bill would devastate the already hard-hit Puerto Rican economy, turning some cities into “ghost towns”.

“I am very scared what could happen here. The federal government doesn’t realise how dire our situation will be if we cannot develop projects in science, technology and industry,” said Rios. “This island will die, it will become a skeleton of itself.”

Medicines and medical equipment represented 72 per cent of the island’s exports in 2016, according to the US Bureau of Labor Statistics.

Rios said 250,000 Puerto Ricans were employed by the pharmaceutical industry and if the bill passes, “it would be a deal breaker”.

“I don’t know how we’d survive if we lose that much talent and productivity,” he said.

Kosmas Kretsos, executive director of the Puerto Rico Consortium for Clinical Investigation, said the Republican tax bill was written without any thought for preserving the island’s economy.

“Almost 50 per cent of our GDP is pharmaceutical manufacturing,” said Kretsos. “Given the hurricane and [already] bad economy, this would have a devastating effect.”

A 1976 tax break, known as Section 936, aimed to turn the island into a manufacturing powerhouse by removing corporate income tax, which saw pharmaceuticals flock to Puerto Rico. But following increasing political pressure, in 1996, then-president Bill Clinton signed a law that would phase out the benefits, which were seen as a form of corporate welfare.

Since then companies have gradually left the island. Today the US territory has a $70-billion debt and an unemployment rate 2.5 times the US average.

In a interview with The Boston Globe, the island’s governor, Ricardo Rosselló, said that if the US was going to benefit from this corporate tax reform, “Puerto Rico should benefit as well.”

Originally published on Research Europe, 14 December


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