26 November 2010

Puerto Rico Tax Cuts Proposed

Governor Fortuño files balance of sweeping tax reform

By : John Marino Caribbean Business

Gov. Luis Fortuño announced Monday that the second and final phase of his proposed tax reform aimed at providing relief to all Puerto Ricans was filed with the Legislature. The reform will provide on average $1.2 billion in taxpayer relief every year for each of the next six years, which constitutes the largest tax relief granted in Puerto Rico history, he added.

“Today we responsibly comply with the pledge we made to all Puerto Rican workers: the most sweeping, equitable and just tax reform every adopted in Puerto Rico,” the governor said. “This reform is based on our commitment to bring relief to Puerto Ricans through just tax rates and control of government spending that will be the formula for our economic development.”

The highlights of the reform, which will phase in the reduced tax rates over the six-year period, include:

— A zero tax rate for those who earn less $20,000 annually.

— A 7 percent rate for those who earn from $20,000 to $30,000.

— A 14 percent rate for those who earn from $30,000 to $70,000.

— A 25 percent rate for those who earn more than $125,000.

— A reduction in the maximum tax rate for businesses to 30 percent from 39 percent.

— An increase to $600 from $300 in the maximum earned income tax credit and an increase to $35,000 from $20,000 in the income cap to be eligible for the program. This will benefit 217,000 additional taxpayers.

— A $400 tax credit for people 65 and older with income under $15,000 annually.

— A deduction of up to 100 percent for charitable donations, up to a limit of 50 percent of adjusted gross income.

The governor also touted the reform’s simplifying of the tax code, reducing to three from five the different taxpayer classifications and eliminating all deductions, except for mortgage interest, charitable donations, medical costs, student loan interest and contributions to retirement or education funds.

The tax reform will mean an average annual savings of $1,500 per taxpayer, with average individual tax rates cut 50 percent and business tax rates 30 percent. It also provides incentives for work and is geared toward economic development and the creation of jobs, Fortuño said.

“History has taught us that a dollar in the hands of Puerto Ricans goes much further than a dollar in the hands of the government,” the governor said. “By putting more money into the pockets of our workers, we are recognizing the fact that they — and not the government — have the power to determine what is best for themselves and their loved ones.”