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CLINTON SEC. 936 PLAN WOULD RAISE $235 MIL. IN FY94, $7.2 BIL. OVER FIVE YEARS

Executive Summary

The Clinton Administration's proposal to limit Sec. 936 tax credits for companies with manufacturing operations in Puerto Rico would raise $235 mil. in fiscal year 1994 and $2.26 bil. through 1998. The figures are contained in the Treasury Department's portion of the Clinton Administration's 1994 budget submission. Similar to ideas outlined in the president's Economic Stimulus package, the budget plan proposes two changes to Sec. 936. First, Treasury notes, the credit "would be limited to 60 percent of the wages the possessions corporation pays to its employees in the possession." In addition, the credit "for qualified possession source investment income would be limited to 80 percent of the possessions corporation's 'qualified tangible business investment.'" The proposed plan would be effective for taxable years beginning after December 31, 1993. For the first two years, however, corporations affected by the change could choose another option to calculate their credit. Under this alternative, the credit would be limited in 1994 to 80% of the credit a company would have received under the current law's formula, and would be limited to 60% in 1995. In a nod to concerns expressed by Puerto Rico officials about the future of the island's economy, the Treasury budget summary notes: "The Administration continues to review this proposal and consult with representatives of Puerto Rico."
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