GAO-06-541 : relations fiscales et phaseout du possessions tax credit (Sec. 936)

On May 19, 2006, the Government Accountability Office published report GAO-06-541 at the request of the Senate Finance Committee: federal–Puerto Rico fiscal relations and economic trends during the phaseout of the possessions tax credit (IRC Sec. 936), designed to stimulate U.S. corporate investment in possessions and whose ten-year transition period ended in 2006.

GAO reports that possessions corporations dominated manufacturing into the late 1990s; after the 1996 repeal, their activity fell sharply. Between 1997 and 2002 those corporations’ value added declined by about two-thirds; part of the drop — especially in chemicals/pharmaceuticals — was offset by affiliates (e.g. CFCs), so some aggregate manufacturing measures stayed near 1997 levels, while the rest of manufacturing lacked that offset. Credit claimed fell from about $5.8 billion (1993 peak) to around $1.1 billion (2003); the number of corporations claiming it in PR fell from 378 to 124 over that span.

On welfare, the report places Puerto Rico’s GNP per capita at about $14,000 (2005) versus about $41,000 in the United States; median household income (1999) ~$14,412 vs ~$41,994. It notes measurement limits (deflator, possible corporate-income overstatement, informal economy). Per-capita taxes are lower than in the states (~$3,071 vs ~$9,426 in 2002) but a similar share of personal income (~28% vs ~30%). GAO makes no recommendations; the Governor commented that the report would help evaluate options.

Analytical report ≠ post-936 employment forecast or judgment on later legislative proposals. Primary: GAO-06-541 (product 2006-05-19; govinfo/GAO).

Source: U.S. Government Accountability Office. https://www.gao.gov/products/gao-06-541