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Executive Summary

936's "BROADER" IMPACT ON PUERTO RICAN ECONOMY should be considered by Congress in its evaluation of the possessions tax credit, Merck President and CEO John Huck urged Congress in testimony before the House Ways & Means Cmte. June 27. "We urge the cmte. to consider the overall impact of production, construction, trading, reinvestment and govt. expenditures on the Puerto Rican economy," Huck stated. "It is doubtful that such progress would be continued if Sec. 936 were repealed. We submit that such a broader assessment of the impact of the possessions credit will demonstrate that it should and can be retained without diverting from the goals of tax reform." Huck's testimony is part of the House Ways & Means Cmte.'s continuing hearings on the Reagan Administration's tax simplification plan. The Merck chief exec's comments reflect drug industry opposition to the Reagan plan's proposal to replace Sec. 936 with a wage-based tax credit. The administration's arguments for the wage credit rest on its position that Sec. 936 be judged solely on its impact on direct employment in Puerto Rico. While urging support for the overall principles of the tax plan, Huck requested revisions in several areas in addition to Sec. 936. For example, Huck asked "Treasury and this cmte. to consider among its priorities making permanent the current moratorium on the rules relating the allocation of research and development expenses against foreign source income." Asserting that under the current rules, an increase in R&D will reduce a company's ability to credit the foreign taxes it pays, Huck declared: "This disincentive must be eliminated in order to stimulate research and keep America competitive with its major trading partners."

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