PBS News Hour Reports on Puerto Rico’s Jones Act Woes

PBS News Hour Reports on Puerto Rico’s Jones Act Woes

The PBS News Hour posted to their website an article by their award winning correspondent Chris Bury (formerly with ABC’s Nightline) regarding the impact of the Jones Act on Puerto Rico in the context of the Commonwealths financial crisis. The video story appeared on the Thursday night (August 13th) PBS News Hour broadcast. There is an error in the article’s title when it refers to a 1917 law. Whoever wrote the headline mixed up their Jones Acts. The maritime cabotage provisions are found in Section 27 of the Merchant Marine Act of 1920 and commonly known as the Jones Act. The 1917 law is a reference to the Jones–Shafroth Act enacted March 2, 1917—also known as the Jones Act of Puerto Rico, Jones Law of Puerto Rico, or as the Puerto Rican Federal Relations Act of 1917. The act superseded the Foraker Act (the Organic Act of 1900) and granted U.S. Citizenship to the people of Puerto Rico. It also created the Senate of Puerto Rico, established a bill of rights, and authorized the election of a Resident Commissioner (previously appointed by the President) to a four-year term. The act also exempted Puerto Rican bonds from federal, state, and local taxes regardless of where the bond holder resides. Key excerpt from the interview: The Jones Act, which requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew, limits business owners and jacks up prices. PBS NewsHour correspondent Chris Bury went to Puerto Rico to understand how citizens are coping with the economic crisis. He spoke to Joel Franqui, owner of a fair-trade store...
More on the Jones Act and Puerto Rico’s Economic Crisis

More on the Jones Act and Puerto Rico’s Economic Crisis

Reuters reported on July 9th regarding the debate over the impact of the Jones Act on the Commonwealth of Puerto Rico as a result of the Island’s financial crisis and the report on the Puerto Rican economy issued by the former chief economist of the International Monetary Fund (IMF) and known as the Krueger Report. Reuters covers those who believe the Jones Act is an imposition on Puerto Rico and those Jones Act industry interests who say the Jones Act has been a blessing. Key excerpts: Tensions over a 95-year-old shipping law have reignited after Puerto Rico’s governor said it has contributed to the island’s dire fiscal situation, a charge met with fierce resistance from the U.S. shipping industry but support from some oil companies and economists. Because it is an island, Puerto Rico relies heavily on ships to bring goods from the U.S. mainland to its ports. A 2012 report by two University of Puerto Rico economists concluded that the policy translated into a $537 million hit to the island’s economy in 2010, and recommended the statute be phased out. What part the Jones Act has played in leading to Puerto Rico’s current fiscal crisis is hotly debated. Shipping companies say the island has benefited from years of reliable service. Critics say it has unfairly raised prices to the detriment of Puerto Rican businesses and people. The American Maritime Partnership (AMP), the powerful lobby group for the U.S. shipping industry, attacked a separate report released on June 29 by former IMF economists, which was requested by Padilla’s administration and which found that the Jones Act was hurting Puerto...
Friends Don’t Let Friends Pay Higher Taxes?

Friends Don’t Let Friends Pay Higher Taxes?

“Friends Don’t Let Friends Pay Higher Taxes.” Sounds like a great marketing slogan, right? So just who do you think is doing the marketing? A conservative think tank? The Tax Foundation of Hawaii? A taxpayer advocacy group? Actually, it comes from the State of Indiana. Recently, the General Assembly of Connecticut, a state with Democratic political leadership just like ours, passed a $40 billion state budget that includes raising nearly $2 billion over two years by raising some taxes and cancelling previously approved tax cuts before they become effective. And it’s not the first time Connecticut jacked up their tax rates either. In 2011, they passed another $2 billion hike that drew considerable press attention. Anyway, Connecticut’s current budget bill prompted a firestorm of reaction from high-profile executives such as General Electric’s CEO Jeff Immelt, who emailed employees that he has assembled an exploratory group to “look into the company’s options to relocate corporate HQ to another state with a more business friendly climate.” Connecticut Governor, Dannel Malloy, who previously was expected to just sign the bill, quickly shifted to backpedaling mode. According to the Hartford Courant, he has not yet signed the bill, leaving open the possibility of revisiting the tax hikes in a legislative special session to be held this summer. So on June 10th, the State of Indiana took out a full-page ad in the Wall Street Journal that took aim, in not-so-subtle fashion, at three large companies that are headquartered in Connecticut – for now. It said: “GE, Aetna, and Travelers: We offer our support in the wake of Connecticut’s looming tax increase, because friends...
Will A Decision For King Bring Health Care Stocks Crashing Down?

Will A Decision For King Bring Health Care Stocks Crashing Down?

Health care stocks have been one of the best performing sectors over the past several years, and the passage of the Affordable Care Act appears to be one important factor—because it’s pouring billions of federal dollars into health care.  But if the U.S. Supreme Court decides for the plaintiffs in King v. Burwell this month, the federal handouts could stop—at least temporarily.  Would that decision send health care stocks into a tailspin? The Congressional Budget Office (CBO) initially projected that the 10-year cost of Obamacare would be about $1 trillion—though many thought that estimate was low.  And the latest CBO 10-year projection (2016-25) estimates a federal cost at $1.2 trillion—even with the gradual slowing of some health care spending. Although federal Obamacare expenditures were relatively low between 2010 and 2014, when the health insurance subsidies kicked in, nevertheless the feds shelled out billions of dollars (1) trying to impose electronic health records on doctors and hospitals, (2) encouraging the creation of Accountable Care Organizations (ACOs), which are supposed to drive higher quality care at lower costs, and (3) funding the Department of Health and Human Services so it could hire people, create an federal infrastructure, coordinate efforts, and develop the healthcare.gov website that turned out to be a disaster when registration started in October 2013. And now billions of dollars are flowing to health insurers, which send part of that money to hospitals, pharmaceutical companies and medical device companies, among others. So while Obamacare has been funneling billions of dollars to the health care industry, much more will come in the future—and the stock market often makes its current valuations based on future...
Whose Tax is It, Anyway? (Part 1)

Whose Tax is It, Anyway? (Part 1)

A few days ago, the United States Tax Court decided a case that is important to small business owners in several states, not just Hawaii. It’s important because 77% of small businesses are organized as “pass-through entities,” such as partnerships, LLCs, or S corporations, where the business entity doesn’t pay the income taxes associated with the business but its owners do. The question is whether those taxes belong to the business or the individual owners. Here’s why it matters: A state income tax that belongs to a business generally can be deducted by the business, but a state income tax that belongs to an individual might not be. Let’s look at an example. Suppose I’m a married business owner in Hawaii and my business brings in $210,000. I pay state income taxes of $20,000 on my business income. First, let’s look at the federal consequences. If the tax belongs to the business, my adjusted gross income (AGI) is $190,000. I pay income tax and self-employment tax on the $190,000. If the tax belongs to me, my AGI is $210,000 and the $20,000 goes to Schedule A. I probably won’t be able to deduct all of the $20,000 there because there are rules that start eating away at the $20,000 once my AGI goes over a certain amount so I can’t deduct it all. And even if I pass that test, state tax is considered a “preference item” for Alternative Minimum Tax, a second federal income tax system, lurking behind the one we all know and love, that is designed to catch people who the government thinks aren’t paying enough...