Puerto Rico Governor Luis Fortuno said he wants to cut taxes an average $1.2 billion in each of the next six years in a bid to spur economic growth.
Individual rates in the U.S. territory would be reduced an average of 50 percent, and corporations’ rates would go down 30 percent over six years, Fortuno said in a news release. There would be retroactive relief for 2010, with individuals’ taxes dropping by 11 percent and corporations’ by 7 percent, according to the release. That may increase Christmas spending, Fortuno said in a conference call with reporters today.
“I am convinced that our tax cut and its implementation will be the key to reigniting our economy” which has contracted over the past decade, Fortuno said.
The territory’s Legislature must approve the plan, which will be contained in two bills, Fortuno said. The first will be introduced today and cover the retroactive cuts that would take effect this year. He will introduce the second bill, which covers the cuts from 2011 to 2016, in coming weeks, he said.
Fortuno, the first Republican governor elected in 40 years, took office in January 2009 on a platform of reducing what was a $3.3 billion budget deficit. Expenses in next year’s spending plan are 20 percent less than when he took office and government payrolls have 17,000 fewer workers, he said.
Fortuno also promised to help restore a credit rating lower than California’s, the worst-rated state according to Standard & Poor’s. The tax cuts will help accomplish that, Fortuno said. Puerto Rico, which has more bonds outstanding than all but nine U.S. states, issues more than twice the number of bonds backed by sales tax than general obligation debt, because of the notes’ higher rating, according to data compiled by Bloomberg.
The plan is part of an economic strategy promoted by the governor that includes property-tax breaks to boost the housing sector and expanding public-private partnerships.
Cuts for 2014 and beyond would be contingent on the government’s meeting spending and growth targets.
“By closing our tax loopholes and broadening our tax base, this tax reform allows us to balance our budget as we proposed,” Fortuno said.