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Friday, May 26, 2006 

Friday, May 26, 2006

Report reveals growing economic gap between U.S., island

Lower employment rates, greater educational challenges among public-school students, and considerably lower per capita income are some of the aspects discussed in the study that the Brookings Institution did while comparing Puerto Rico’s economy with that of the mainland U.S.

According to Washington sources, the findings that were made public this week and that are contained in the book titled “The Economy of Puerto Rico: Restoring Growth”, are in line with what the Government Accountability Office (GAO) is expected to find once its report is completed.

The findings in the Brookings report show that the existing gap between the local and stateside societies isn’t just big, it’s getting bigger.

Some of the reasons for this difference were found to be the U.S. tax policy of providing tax exemptions to companies based in the States, under Sec. 936 of the Internal Revenue Code, with little or no local employment.

Further tax exemptions, like the Sec. 243 proposal planned by the Acevedo Vilá Administration are questioned by the fact that much of the income from manufacturing companies in Puerto Rico ends up leaving the island.

According to the report, drug companies earn 10.5 times what they pay in wages on the island vs. 2.1 times in the States.

One of the island’s most serious problems, the report says, is the low labor participation rate or the percentage of people in the labor force.

The report states that an Earned Income Tax Credit (EITC) would be the primary solution to the low employment and participating rate on the island.

This tax credit provides for payments to low-income workers with incomes too low to have an income tax liability.

The report added that the Child Tax Credit also provides for a payment to workers who cannot benefit from an income tax credit. In PR, only workers with three or more children qualify for the Child Credit refunds. In the States the EITC covers payments for workers with one child or two. Sen. Hillary Clinton (D-NY) has proposed a bill to cover workers in Puerto Rico with one child. President Bush's FY7 Budget proposes ending Child Credit Social Security tax refunds in Puerto Rico—as policy opposite to this major recommendation of the report.)

As for the per capita income, the report states that when compared to per capita incomes of the mainland, the gap has widened in the past 16 years. Also gross national product per capita was 20% of in 1950, 40% by the early '70s, but is only 30% now.

Job growth has been equal to that in the States but wage growth has slipped behind the States, and the local private sector is underdeveloped.

It also criticizes Puerto Rico for providing an inhospitable climate for local business because of practices such as slow and bureaucratic permitting.

The following findings are also mentioned:
° Local corporate taxes are too high but are also undermined by too many
tax incentives (special breaks)—which diminish the revenue base.
° Puerto
Rico hasn’t penalized companies that got local tax exemptions but did not employ
as many people as they said they would.
° Tax collection is weak and the
underground economy is a significant problem.

As far as education policies go, the Brookings report found that Puerto Rico spends half of the U.S. average on elementary and secondary education.
Educational reforms on the 1990s have not been followed through and, as a result, half of poor youth face serious educational challenges and the state university has ended up favoring students from high-income families who had the means to pay for private schooling before going to college.

Copyright © 2000-2006 Casiano Communications Inc. All rights reserved.

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