«The power to tax is the power to destroy.»—U.S. Supreme Court Chief Justice John Marshall in McCullock v. Maryland

The economic-development and government-financing policies being proposed by Gov. Alejandro García Padilla and Popular Democratic Party (PDP) leaders in control of the Legislature, while enacting a so-called «tax reform,» aren’t based on a sound economic-development purpose, but are a desire and attempt to detain, derail or destroy the unstoppable growing support for equal political rights and equal economic opportunities in Puerto Rico.

To disregard sound economic development and good government financial policies to impose a tax reform, which is founded on an unwanted partisan political purpose, to undermine fast growing support for democratic equality, isn’t only irresponsible, but also contrary to good and conscientious government. This is particularly so if the proposed policies are harmful instead of benefiting the people of Puerto Rico.

And what, you may ask, is the unwanted political strategy being enforced to delay or destroy Puerto Rico’s growing support for equality? The strategy is to lower income taxes as much as possible so the difference between the amounts paid to Puerto Rico in income taxes is substantially lower than federal income taxes. As a result, when the statehood «Yes or No» admission act is submitted for a vote in a plebiscite, PDP leaders will campaign against equality by trying to instill fear in all local taxpayers that they would have to pay higher income taxes than they are currently paying.

Even before reducing Puerto Rican income taxes, they are already lying to the people by saying they (the PDP) will be putting more money in people’s pockets. They are lying because they know that substantially more than 2 million citizens of the island’s 3.5 million population, don’t pay any income taxes. Obviously, the government won’t be putting a single penny in any of their pockets.

Not only are they not putting any money in the pockets of an overwhelming majority of our citizens, but they are also substantially increasing taxes on goods and services by imposing taxes at all levels of the economic transactions; from importer or producer to distributor and wholesaler; then, from distributor and wholesaler to retailer and consumer. The sales & use tax (IVU by its Spanish acronym) paid now is 7%. With the additional taxes, the final prices being paid by users and consumers would be around 16% to 22% higher.

How can the Governor and PDP leaders keep telling the people they will have more money in their pockets, when by the end of every month and every year, an overwhelming majority of people will be paying much more in taxes [through the value-added tax, or VAT] than the additional money they would be saving in income taxes.

Small businesses, including «mom and pop» stores, will be paying substantially more taxes. At the same time, they will be paying taxes before they even sell their products. They will also have to invest more time, equipment and accounting costs to keep more records and file more forms in the Treasury Department than ever before in our history.

Yes, some taxpayers in Puerto Rico would pay fewer taxes and have more money in their pockets if income taxes are reduced, but these will be the highest-income earners. Residents of Puerto Rico with incomes of $200,000 a year or higher could end up with more money in their pockets if the income-tax reductions are high enough. However, the number of individuals who report earning $200,000 or more a year is a very small percentage of the population, probably less than 2% of the island’s 3.5 million inhabitants.

Nevertheless, lowering income taxes—the most fair, reasonable and less regressive of all taxes because those who earn little or nothing aren’t taxed and those at the lower levels of taxable income have very little to pay, with the amount increasing reasonably as their income increases—won’t benefit the vast majority of our people, particularly the middle-income group and majority of private and public workers. Lowering income taxes will only really benefit the most affluent and wealthiest among us.

The more that income taxes are reduced, the more the VAT–IVU taxes will be increased. The government’s purpose is to collect $1.5 billion more than they are collecting now. As a result, the more the wealthiest, multimillionaire and billionaire individuals and corporations are granted tax credits, the more the working class, public and private employees, middle-income population, professionals, technicians, skilled employees and small businesses will have to pay in an unusually high VAT.

The proposed VAT, in substitution or together with the IVU, will either deepen our economic depression or stimulate inflation whereby prices will continue to increase uncontrollably. I repeat, the PDP’s proposed tax reform isn’t motivated by sound economic principles, but by their desperation and desire to destroy the political momentum toward equality. In the process, however, they are destroying our middle class and small entrepreneurs, and driving professionals, technicians, teachers and other specialists to leave Puerto Rico to enjoy equality in the states of the Union.

There can be no doubt that the VAT system, which imposes taxes at all levels of the economic transactions of the sale of goods and use of technical and professional services, is more complicated and requires more record keeping and filing of more forms than the IVU, without any concern as to how adversely it affects all of us.

Obviously, if the Treasury has had trouble implementing the IVU, it will have even more problems implementing the VAT. But, since the VAT isn’t used in the States, it differentiates Puerto Rico from the states of the Union and that is this government’s reason for wanting to implement the VAT and do away with the IVU.

The Governor and his political cohorts in the Legislature don’t seem to care how much damage they are doing to our economy as long as they can obstruct the momentum toward achievement of equality as American citizens.

As the threat of a great economic fiasco and irremediable disaster to tens of thousands of small businesses and individuals looms above us, something has to be done to try to prevent further damage to our people and economy.

To stimulate and direct our economy toward recovery, all new and additional consumption taxes must be stopped. Some of the existing ones such as the patente nacional, property tax on inventory and personal property, among others, must be repealed. Income taxes must be left as they are. All needed revenue for government must be obtained from the wealthiest individuals and corporations that are now paying less than 4% tax on their net income. The 90% income-tax credits for «foreign» corporations and billionaire individuals must be reduced significantly to tax them about 16% on their net income. The revenue generated will help us recover. About $3 billion to $4 billion a year would be collected if the aforesaid tax credits were reduced and our middle-income group, small businesses and people could then begin to recover economically. The VAT on consumption must be stopped!

If this administration succeeds in enacting the VAT system, we must commit ourselves to repeal the VAT system in January 2017 as soon as we drive the rascals out of office.

Carlos Romero Barceló is a two-term former governor of Puerto Rico (1977-84), a two-term former resident commissioner (1993-2000), a two-term former mayor of San Juan (1969-78) and was president of the New Progressive Party for 11 years. While Governor, he became president of the Southern Governors’ Conference. While mayor of San Juan, he became president of the National League of Cities. He is now a real-estate consultant doing business as CRB Realty. His email address is rbarcelo@prtc.net. Comments on this article are welcome at caribbeanbusiness.pr. Go to the «Sign in» link on the homepage to participate. Emails also may be sent to column@caribbeanbusiness.pr.