Americans for Tax Reform (ATR) has come out with a new idea for creating growth in Puerto Rico, transforming the U.S. territory from “a black hole of capital to a magnet for capital” by turning the entire island into an enterprise zone.
What are enterprise zones? Generally speaking, they are impoverished or distressed areas that offer tax incentives to encourage businesses to invest in the area and create economic growth.
Enterprise zones were pioneered by former Vice Presidential candidate and U.S. House and Urban Development Secretary Jack Kemp, who also served as a congressman from upstate New York after retiring from a successful professional football career with the Buffalo Bills.
While in Congress, Kemp teamed up with Rep. Robert Garcia (D-NY) to introduce enterprise zone legislation. The Kemp-Garcia proposal aimed to provide certain tax incentives for individuals and businesses in depressed areas on the theory that a favorable tax structure will be sufficient to induce new businesses to locate in economically depressed areas.
ATR author Ryan Ellis suggests that some elements of a Puerto Rican enterprise zone might include:
- Lower business tax rates to 15% or even lower in Puerto Rico.
- Attract workers back to Puerto Rico by lowering personal tax rates by a low tax rate on wages, a FICA tax holiday, or both.
- Encourage capital in Puerto Rico by turning Puerto Rico into a capital gains tax free zone and eliminate the “death tax” in Puerto Rico.
- Facilitating the purchase of hard assets to create the capital stock a growing economy needs by allowing full business expensing for all computers, machinery and buildings for investors.
An idea also championed by the Reagan Administration, variations of Enterprise Zones have already been implemented on a piecemeal basis in Baltimore, Washington, D.C. and elsewhere throughout the U.S. There are no enterprise zones in Puerto Rico according to information assembled by the U.S. Department of Housing and Urban Development.