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Lot 28A: President Clinton Discusses Proposed IRS Changes to Benefit Puerto Rico
Presidential Letters, Free Franks & Speeches: Washington to Bush + Important Autographs in History, Science & the Arts
26 October 2016
New York, NY, USALive Auction
Description: Discussing President Clinton’s Proposed IRS Changes to benefit Puerto Rico “Encourage investment in Puerto Rico by companies that will create jobs rather than merely shelter income from U.S. tax” ********** CLINTON, BILL. (b. 1946). Forty-second president of the United States. TLS with a holograph postscript. (“Bill”). 2pp. 4to. White House, May 14, 1993. On White House stationery bearing the blind-embossed Great Seal of the United States. To Senator DANIEL PATRICK “PAT” MOYNIHAN (1927-2003). ********** “Thank you for your letter regarding my proposal to amend section 936 of the Internal Revenue Code. As suggested in your letter, my proposal will reduce the aggregate tax benefits enjoyed under section 936. Nevertheless, very significant tax benefits would continue to be available after enactment of the proposal. These benefits will be unavailable to U.S. companies investing in any location other than a U.S. possession. I have also modified the proposal to further ensure that any adverse impact on the Puerto Rican economy is minimized. As now structured, the section 936 credit will be limited to 60 percent of wages paid, and an additional credit will be available for income derived from investing 936 earnings in the possession. Treasury estimates that the proposal would eliminate only slightly more than half of total section 936 benefits, as some companies will increase benefits by increasing employment. More importantly, the reduction should fall most heavily on the relatively small number of companies that generate little employment in the island relative to the tax benefits received. Because the credit is linked to employment, the most labor-intensive industries should not be affected, and an incentive to increase employment is created for other companies. Linking the credit to employment should encourage investment in Puerto Rico by companies that will create jobs rather than merely shelter income from U.S. tax. My proposal should provide a viable alternative—politically and economically—to the existing section 936 tax credit. The proposal simply makes the section 936 subsidy more cost-effective by targeting it to one of the principal purposes for which it was created: jobs. My Administration is working closely with representative of both parties in Puerto Rico to ensure that our proposal achieves this purpose. We look forward to working with you and the members of the Finance Committee on this important issue… [In holograph:] Do we need to discuss this Mon? - Tough now.” ********** Clinton, a former Arkansas governor, became the youngest president since Kennedy upon his election in 1993. His re-election four years later made him the first Democrat since FDR to serve a full second term, and he left office with the highest approval rating of any president in the second half of the 20th century. Unfortunately, a series of sex scandals led to his impeachment and overshadowed his accomplishments. His 1998 impeachment was only the second time in American history that a president had been impeached (the first being Andrew Johnson in 1868). ********** Moynihan served the Kennedy and Johnson administrations as assistant secretary of labor until 1965. Following a failed bid for election to the New York City Council, Moynihan became director of the Harvard–MIT Joint Center for Urban Studies. Despite being a Democrat, he was selected by President Richard Nixon to be his counselor on urban affairs, and in 1973, he was appointed U.S. ambassador to India, the world’s largest democracy, in an effort to smooth over the two country’s sometimes uneasy relationship. Moynihan later served as President Ford’s ambassador to the United Nations and a longtime Senator representing New York from 1977 to 2001. Although Moynihan opposed Clinton’s health care reforms, the two enjoyed a close relationship. In 2001, when Moynihan left his seat in the Senate, former First Lady Hillary Clinton was elected to fill it, after receiving Moynihan’s endorsement. ********** Our letter argues in favor of Clinton’s amendment of section 936 of the Internal Revenue Code, which he proposed as a means to help reduce the country’s deficit. Section 936 gave American companies a financial incentive to create subsidiaries in Puerto Rico and was established in 1976. “Because of these generous tax incentives for business, Puerto Rico grew rapidly throughout the 20th century and developed a substantial manufacturing sector, though it remained relatively poor compared to the U.S. mainland. However, because section 936 made foreign investment in Puerto Rico artificially attractive – creating, in effect, an economic bubble – it left the island vulnerable to a crash if the tax provisions were ever to be repealed. As it happened, section 936 became increasingly unpopular throughout the early 1990s, as many saw it as a way for large corporations to avoid taxes. Ultimately, in 1996, President Clinton signed legislation that phased out section 936 over a ten year period, leaving it to be fully repealed at the beginning of 2006. Without section 936, Puerto Rican subsidiaries of U.S. businesses were subject to the same worldwide corporate income tax as [any] other foreign subsidiary,” (“Tax Policy Helped Create Puerto Rico’s Fiscal Crisis,” taxfoundation.org, Greenberg and Ekins). Clinton’s proposal was controversial at the time and remains so in light of Puerto Rico’s current economic crisis. Our letter seeks to convince Moynihan of the wisdom of the policy change because of his role as chairman of the Senate Finance Committee. ********** With paper clip indentation in the upper left margin of both pages. Near fine.