Puerto Rico’s happy warrior

Suhail Khan Institute for Global Engagement
Font Size:

At the depths of a lingering economic downturn and the darkest times of the Cold War, Ronald Reagan inspired Americans and indeed millions worldwide to continue in the struggle for democracy, economic freedom, and individual liberty. Reagan (whose one-hundredth birthday anniversary we’ll celebrate this February) cheerfully encouraged freedom-loving people everywhere to triumph over despair, big government and oppressive tyranny. One of the many who answered the Gipper’s call was a young student from Puerto Rico who began his career in public service volunteering in Reagan’s Washington, D.C. campaign office. In 2008, that young Reagan Republican, Luis Fortuño, was elected governor of Puerto Rico.

Winning his election by the largest margin of victory in several decades in a notoriously anti-GOP year, Fortuño led a conservative revolution in Puerto Rico in 2008: the House Speaker, Senate President, Senate Majority Leader, and a majority of mayors in the seventy-eight municipalities — including the mayor of San Juan, the island’s largest city — were all elected campaigning on conservative principles.

The Reagan Republican immediately set forth in implementing an aggressive plan to get the Commonwealth’s fiscal house in order and spur the creation of jobs (in addition to an overall economic downturn, Fortuño inherited a $3.5 billion budget deficit). Governing on a platform of smaller, more efficient government and lower taxes, Fortuño enacted emergency legislation requiring expense cuts, including voluntary and mandatory reductions of 17,000 government workers, reversing the previous trend where approximately 70% of the budget was dedicated to government employee salaries and benefits.

Fortuño reduced $2 billion in spending the first year by implementing bold cuts: a 10% cut in government operating expenses (official vehicles, cell phones, credit cards); a 10% pay cut for Fortuño’s own salary and 5% for agency heads; a 30% reduction in political appointments; a freeze on all salaries for two fiscal years; and a 15% cut in professional service contracts for consulting and legal services.

These bold efforts have delivered results. After a lost decade and five years of recession, Puerto Rico’s economy is already showing signs of stabilization and recovery. In his first two years in office, Fortuño has cut the size of the budget by 20 percent and is on course to balance the budget by the end of his first term, reducing the deficit to zero in four years.

And just this week, Fortuño unveiled a comprehensive plan to dramatically cut Puerto Rico’s corporate and individual tax rates and detailed one of the most significant planks in his fiscal reform agenda to create jobs and promote growth for an economic turnaround on the island. Fortuño presented his plan 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 January, 2011, will provide significant individual and corporate tax reductions across the board. Average rates will be reduced 50 percent for individuals and 30 percent for corporations, providing an average of $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,” Fortuño told the legislature. “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.” Fortuño continued, “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.”

Fortuño’s tax cut plan is clearly designed to create jobs and spur economic development; give immediate relief by reducing tax rates for all of Puerto Rico’s 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 January 1 and individual reductions phasing in over six years.

Ronald Reagan once remarked that Latinos are Republicans, “they just don’t know it.” Puerto Rico’s Governor Fortuño knows it and is no doubt a leading tribute to the Gipper’s legacy and a shining example of leadership for governors and indeed all elected officials throughout the country.

Suhail A. Khan chairs the Conservative Inclusion Coalition and serves on the Board of Directors of the American Conservative Union.