How the Build Back Better Act Affects Puerto Rico

The Biden Administration’s Build Back Better plan is an ambitious effort to address climate and economic concerns. The House Energy and Commerce, Ways and Means, Veterans’ Affairs, and Judiciary Committees all completed consideration of their sections of the bill last week, preparing the bills for floor consideration. The links will take you to the videos and documents from these meetings.

Decisions made in two of these committees relate to Puerto Rico.

Energy and Commerce

Energy and Commerce is seeking to expand Medicaid to repair the gaps in this program. “The Build Back Better Act permanently expands Medicaid eligibility to millions of Americans who previously fell within the Affordable Care Act (ACA) coverage gap,” their Fact Sheet says. “Closing this coverage gap will allow up to 4 million uninsured Americans to gain access to coverage.”

Unfortunately, this expansion is only for States, not territories. Congress is legally allowed to treat territories differently from States. As a State, Puerto Rico would benefit from this expansion, but Puerto Rico is a territory belonging to the United States, and therefore does not receive equal treatment.

Ways and Means

The Ways and Means Committee decided to make the new markets tax credit (NMTC) permanent. NMTC is a program designed to encourage investments in low-income communities.

In particular, a new, permanent, annual $100 million NMTC allocation will be provided for U.S. territories. 80% of these funds will go to Puerto Rico. The funding will begin in 2022, and will be indexed for inflation from 2024 on.

In addition, there will be a new tax credit for “qualified business corporations” that are based in states but also have operations in the territories.  The “possessions economic activity credit” provides companies with a tax credit of 20% of the sum of wages and benefits paid to workers in Puerto Rico, up to $50,000 per employee.

The Ways & Means Committee’s description of the provision is explicit that “[f]or purposes of the credit, “possessions” include the five fiscally autonomous territories of American Samoa, Guam, Commonwealth of Northern Marianas, Commonwealth of Puerto Rico, and the U.S. Virgin Islands.”

The rationale behind the Committee’s description of the territories as “fiscally autonomous” appears inconsistent with current law.  Puerto Rico’s “fiscal autonomy” is currently hindered by the influence of the Federal Oversight and Management Board imposed under the  Puerto Rico Oversight Management and Economic Stability Act (PROMESA) of 2016.

Three U.S. territories are required to use a mirror code for taxes: Guam, the U.S. Virgin Islands, and the Northern Mariana Islands. Territories that use a mirror code apply the terms of the Internal Revenue Code (IRC), but they replace each instance of “the United States” in the IRC with the name of the territory. American Samoa, whose residents are U.S. nationals but not citizens, does not rely on a mirror code for taxes, but has chosen to use a modified version of the IRC as its local income tax law.

Ways and Means also approved an end to limitations on rum taxes for Puerto Rico and the Virgin Islands.

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