SAN JUAN, Puerto Rico, Oct. 26 /PRNewswire-USNewswire/ -- Puerto Rico Gov. Luis Fortuno has unveiled a comprehensive plan to dramatically cut Puerto Rico's corporate and individual tax rates, detailing one of the most significant planks in his fiscal reform agenda to create jobs and promote growth for an economic turnaround on the Island.
The Governor presented his plan Monday evening to the Puerto Rico legislature, which is expected to approve the tax cut legislation by the end of the regular session. The plan will provide immediate tax relief for the current 2010 tax year, and starting Jan. 1, 2011, will provide significant individual and corporate tax reductions across the board. Average rates will be reduced by approximately 50 percent for individuals and 30 percent for corporations providing an average $1.2 billion in tax relief annually for the next 6 years.
"Comprehensive tax cuts are a central tool we are using in Puerto Rico to ensure our businesses and our citizens are the heart of the economic recovery," Gov. Fortuno said. "We have made tough choices to tackle our inherited budget deficit and are turning the full weight of our focus to adding jobs and creating the best economic and business climate in the nation in Puerto Rico."
"As Puerto Rico takes another step toward fiscal responsibility, we are moving to strengthen our economy - and when our economy is strong, businesses flourish. It is with well-founded optimism about the future of Puerto Rico that we move forward with this plan," the Governor said.
Fortuno's tax cut plan is designed to create jobs and spur economic development; give immediate relief by reducing tax rates for all taxpayers; simplify the tax system, with aggressive measures that target tax evasion; close tax loopholes; broaden the base and provide incentives to work.
The plan provides immediate relief for the 2010 tax year, including an average 7 percent credit for corporations and 11 percent credit for individuals. Starting in 2011, a new streamlined tax code will provide across the board rate reductions for corporations and individuals, with corporate rates effective Jan. 1, and individual reductions phasing in over six years.
For businesses, the top rate will drop from 39 percent to 30 percent, and the previous seven-tier corporate bracket will be simplified into three lowered rates - 20 percent, 25 percent and 30 percent.
In real terms, a small business that generates between $150,000 and $200,000 and currently paying 36 percent, would drop to 20 percent starting January 2011. In another example, a business that generates $2 million in earnings, which today pays a 39 percent tax rate, would be subject to a tax rate of 25 percent starting next year.
For individuals, the average tax rates will drop an average of 25 percent the first year, increasing to a nearly 50 percent reduction over six years. In addition, the Alternative Minimum Tax (AMT) will be eliminated over a 4-year period. To encourage work, the local earned income tax credit will be doubled from $300 to $600, and the qualification limit increased from $20,000 to $35,000.
This means a single individual without dependents earning $22,050 with a $1,421 tax burden would pay $213 less in 2010. In 2011, that figure would drop from $1,421 to $257. In 5 years, instead of paying taxes, that filer would receive a refund.
For a two-earner family with $61,490 in income and three dependents that paid $4,318 in taxes will receive a $648 tax cut in 2010. For 2011, their taxes will be cut in half, from $4,318 to $2,032. And in six years, that family will pay only $609 in taxes, an 86 percent reduction in their tax burden. During that time, that family will have saved $16,816.
"Our tax reform package ensures tax fairness for the four million American citizens who reside in Puerto Rico. It promises to jumpstart Puerto Rico's economy by putting money where it belongs, in the hands of people," the Governor said.
Governor Fortuno underscored that to sustain fiscal responsibility, individual tax reductions for years 2014-2016 will be contingent on the government meeting targeted goals in three areas: operating expenses, revenues, and economic growth.
"We are making the taxpayer the watchdog for fiscal discipline, and ensuring government keeps its promise to maintain a balanced budget," Governor Fortuno said.
The tax cut plan is part of Fortuno's limited government, pro-growth agenda in Puerto Rico to eliminate the budget deficit he inherited and restart the economy. The Governor and his administration inherited a $3.3 billion budget deficit, the largest, by proportion, of any in the country. In his first 21 months in office, Fortuno has cut government spending by 20 percent, brought down the deficit from 46 percent to 11 percent of the budget and is on course to balance the budget by 2013. The measures taken by the administration led to an upgrade of the Island's credit rating, which now stands at its highest level in 35 years.
SOURCE Puerto Rico Federal Affairs Administration