pay to the order of - PUERTO RICO HERALD

PAY TO THE ORDER OF
PUERTO RICO
Alexander Odishelidze
and Arthur Laffer
Copyright © 2004 by Alexander Odishelidze
Pay to the Order of Puerto Rico
by Alexander Odishelidze
Printed in the United States of America
ISBN 1-594672-89-X
All rights reserved. No part of this publication may be reproduced
or transmitted in any form or by any means without written permission
of the author.
Allegiance Press
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www.allegiancepress.com
(703) 934-4411
Table of Contents
Acknowledgements.......................................vii
Foreword Lawrence Kudlow............................................9
Introduction 1 Alexander Odishelidze...................................13
Introduction 2 Arthur Laffer
.................................................19
Section I Economy.......................................................25
Chapter 1 My Odyssey to Freedom ...............................27
Chapter 2. The Last Colony............................................39
Chapter 3 America Delivers...........................................51
Chapter 4 The Price of Dependence ..............................59
Chapter 5 Pitorro and Panas
(Moonshine and Breadfruit)..........................95
Chapter 6 The American Taxpayer's Commonwealth
Burden .........................................................103
Chapter 7 Making Lemons into Lemonade .................159
Chapter 8 Biography of a Tax Gimmick......................173
v
Pay to the Order of Puerto Rico
Section II Status
..........................................................213
Chapter 9 The Young Bill: The Roar of the Coqui ......215
Chapter 10. Eulogies for the Young Bill.........................257
Chapter 11 The Cries of Patriots....................................291
Chapter 12 The Eternal Territory...................................303
Section III Character
...................................................319
Vignette 1 Moncho's Other Family Business ...............321
Chapter 13 Mainlining Our Kids ...................................329
Vignette 2 A New Friend of Commonwealth ...............351
Chapter 14 Welcome to the Laundromat a la
Boriqua........................................................355
Section IV Identity
.......................................................379
Chapter 15 "Mejorando La Raza"
(Improving the Race) ..................................381
Chapter 16 The Last, Full Measure ...............................399
Chapter 17 More Than a Hero, Less Than a
Citizen .........................................................437
Afterword Alexander Odishelidze.................................439
vi
Acknowledgements
I wish I had the space to thank all those who have helped me
develop this book over the years. However, the people that
deserve particular mention are: Chuck Donovan who has been my
relentless Editor/Researcher who added the depth to this work that I
could not have achieved on my own, Professor Gonzalo Cordova,
Ph.D. who has given me the cultural and racial insights into Puerto
Rico and Manuel Rodriguez Orellana who originally opened my
eyes to the Puerto Rico political status dilemma.
vii Foreword
The United States was founded on economic and political freedom.
A "City on the Hill," to use Ronald Reagan's phrase,
metaphorically describes American exceptionalism. This freedom
enables all our citizens to successfully pursue unlimited opportunities
to use their God-given talents to work, produce, take risks,
invest, and grow wealthy while keeping the prosperous fruits of
their enterprise.
All too often in the 20th century, opportunities to do just this
were being taken for granted. But not by a young Alex Odishelidze,
who risked life and limb to escape communist oppression and make
a new start in America.
Mr. Odishelidze's passion to succeed in business should be
taught in American business schools. As World War II raged across
the European continent, a young Alexander Odishelidze witnessed
carnage by Communists and murder of his own family members in
his mother country. He vividly recalls indoctrination through loudspeakers
placed in the public squares, and before his escape to freedom,
first in Canada and then New York, was honored by Marshall
Tito for his devotion to the Party.
He charged head-first into the insurance business and was
quickly spotted as a go-getter. And no one was going faster than
Alex Odishelidze. With every deal, every sale, every promotion, he
knew that more opportunities were around the corner.
Through his work in the insurance industry, Mr. Odishelidze has
9
Pay to the Order of Puerto Rico
uncovered a gaping hole in Puerto Rico's economic system. U.S.
companies can now not only manufacture their products in Puerto
Rico tax free, but also assign the licenses to manufacture those
products to its Puerto Rican subsidiaries and keep the tax-free profits,
even if the actual work was done in China or elsewhere. This
takes even more jobs from American workers. Americans are subsidizing
Puerto Rico to the tune of $22 billion per year!
My dear friend Arthur Laffer, who nearly single-handedly revolutionized
American economic thought, brings a great deal of
insight to this book. By developing the Laffer Curve, he captured
the incentive effects on work and investment from changing taxrates.
Dr. Laffer shows how higher after-tax economic rewards from
lower tax-rates will expand the economic pie as human behavior
responds to growth incentives by supplying added work, investment,
and risk-taking. In short, when it pays more, after-tax, to
work and produce, then people respond immediately. As a result,
rising national income and production from lower tax-rates actually
throw off higher tax revenues within a relatively short time.
For years, Art Laffer has advised top Puerto Rican officials and
is in a unique position to analyze this situation. In 1979, Art Laffer
drafted a report for the incoming governor of Puerto Rico on how to
mend the island's economic ills. He notes that the purpose of this
book is to shine more light on the myriad opportunities for
economic prosperity.
Laffer points out that in 1987, Puerto Rico cut the top marginal
rate on personal income taxes. A respected study showed that
Puerto Rican taxpayers declared 50 percent more income than the
previous year. The total number of taxpayers increased by one third
and total tax revenues increased by 28 percent.
These extremely able and insightful men have combined their
efforts to show the American people that the current support system
for Puerto Rico is unfair to American taxpayers and unjust for the
residents of Puerto Rico. However, unlike the days when empires
ruled colonies around the world, rules and regulations could be
changed by executive decision.
Such is not the case with Puerto Rico. Only the Congress can
alter Puerto Rico's status. Numerous Members of Congress from
10
Foreword
diverse parts of the country agree with Odishelidze and Laffer's
position to allow Puerto Rican self-determination. However, many
Americans are unfamiliar with Puerto Rico's unique status and its
impact on the American economy. Odishelidze and Laffer provide
an eye-opening look at how Puerto Rico's status siphons tax dollars
from hard-working Americans, while impeding its own economic
progress.
The authors give a detailed chronology of Section 931 of the
Internal Revenue Code. From its inception in 1921, which
exempted from federal income taxes all income of individuals and
corporations that originates in U.S. possessions, including Puerto
Rico, subject to certain key limitations.
Mr. Odishelidze and Dr. Laffer reveal key facts about Puerto
Rico under this system such as the fact that unemployment has
risen significantly and has outpaced that of the mainland United
States. They also show the intense lobbying efforts by pharmaceutical
companies and other U.S. concerns to preserve the status quo in
Puerto Rico's tax system.
This tax structure, while well-meaning in the early 20th century,
no longer has any purpose in the Puerto Rican economy, and in fact,
is counterproductive. During the more than eighty years it has been
in effect it has only helped to create jobs in a fifteen to twenty year
period.
Odishelidze and Laffer show that every working middle and
upper-middle class American contributes $400 annually to the
upkeep of Puerto Rico.
Yet, what are the results of this misguided tax and political
status policy when we compare Puerto Rico to the other fifty states?
Puerto Rico is second in out-of-wedlock births, fourth in high
energy costs, and dead last in per capita income. The United States
has also spent billions on improving Puerto Rico from 1981-2001.
Some of those expenditures include: Food Stamps, $19.25 billion;
Educationally Deprived Children Program, $3.59 billion; nearly $1
billion on public housing and a half billion dollars on a school
lunch program.
Even more alarming, grants given to Puerto Rico from the
United States account for significant portions of local departmental
budgets. For example, the Public Housing Administration in Puerto
11
Pay to the Order of Puerto Rico
Rico received a grant of $200 million from the federal government.
This accounted for 92.9% of its budget. The Puerto Rican
Education Department received $875.9 million, which accounts for
35% of its budget.
The poverty level in Puerto Rico is extremely high, despite a
close relationship with the United States.
The authors also demonstrate how Washington works with the
1996 effort to change Puerto Rico's status. Mr. Odishelidze shows
the strong power of the pharmaceutical lobbies, which benefit handsomely
from Section 936. He takes the reader inside breakfast
meetings with then-Vice President Al Gore and stands his ground
against the Vice President's skepticism.
The authors go on to document that the United States is not
getting a return on its investment. They make the case that the
federal government should move away from the current system of
tax subsidies for