Trump’s Exaggerated Claims on Biden and Pharma in Puerto Rico

By Rem Rieder

Posted on October 14, 2020

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At a rally in Sanford, Florida, President Donald Trump made the exaggerated claim that his Democratic rival, Joe Biden, “voted to obliterate” Puerto Rico’s pharmaceutical manufacturing industry.

And during a health care speech in Charlotte, North Carolina, Trump falsely made it sound as if Biden had done this all on his own when he promised to “reverse the disastrous and heartless decision Joe Biden made in 1996 to shut down the pharmaceutical industry in Puerto Rico.”

In 1996, Biden, then a senator, joined all of the Senate Democrats voting and a majority of its Republicans, who controlled the Senate at the time, in voting for a wide-ranging bill focused largely on small businesses.

It is true that the legislation, which originated in the Republican-controlled House, phased out a tax exemption for companies manufacturing products in Puerto Rico and other U.S. territories. Loss of the exemption did impel many pharmaceutical companies to move their operations off of the island, often to foreign nations, costing Puerto Rico many jobs and harming its economy.

But the allegation lacks context. At the time, eliminating the provision was seen as striking a blow against “corporate welfare.” And among other things, the legislation also raised the minimum wage. The final Senate vote on the bill, which was signed into law by President Bill Clinton, was 76-22.

A Senate Finance Committee report issued in 2016 found that the loss of the exemption was not nearly as calamitous for Puerto Rico as some have concluded. Also, while the island’s drug manufacturing was harmed by the bill, it was not entirely “shut down” or “obliterated,” as we will show later.

Trump has blamed Biden for decimating Puerto Rico’s pharmaceutical industry at least six times, most recently in a Florida campaign rally.

Trump, Oct. 12: In 1996, Joe Biden voted to obliterate Puerto Rico’s thriving pharmaceutical industry. Remember, they used to have a great pharmaceutical industry. He cut it out and when he cut it out, he sent Puerto Rico into a nosedive like nobody’s ever seen before. So we’re bringing it all back and we’re bringing it back to Florida, too.

In late September, he put the blame solely on Biden and claimed he would “reverse” the policy:

Trump, Sept. 24: And we’ll reverse the disastrous and heartless decision Joe Biden made in 1996 to shut down the pharmaceutical industry in Puerto Rico. It took place in 1996. Biden shut down the whole Puerto Rico industry. This was a very good industry. They were doing a fantastic job. And one day, it was just literally gone. Biden shut it down with what he did with taxes. And it was — it was a disgrace, but we will bring it back.

At a rally in Bemidji, Minnesota, Trump appeared to blame the administration of President Barack Obama, whom Biden served as vice president.

Trump, Sept. 18: We will make our medical supplies right here in the United States. And you’ve probably heard me today, you know, it used to be — Puerto Rico did tremendous dollars in medical supplies and then what happened? They made a lot. They did a good job and Obama-Biden destroyed it. They took away the incentive, all of the taxes, and they took away the incentive and Puerto Rico went down a long way.

As we mentioned, Clinton signed the law phasing out the exemption in 1996; it expired in 2006. Obama became president in January 2009.

On other occasions, Trump has said accurately that Biden voted for a bill, although on Sept. 25, before saying it, he claimed Biden had “ruined” Puerto Rico’s economy.

We asked the Biden campaign to comment on Trump’s allegations. Campaign spokesperson Rosemary Boeglin responded via email, “Trump sides with megacorporations over workers and big pharma over patients, and is reportedly no fan of paying taxes, so it’s no surprise that he’s hitting Joe Biden for backing a bipartisan plan to prevent Puerto Rico from becoming a big pharma tax haven, while creating a Puerto Rico economic activity credit, and extending a variety of tax incentives to small businesses. Critically, the bill also secured an increase in the federal minimum wage, a boost for workers.”

We asked the Trump campaign why the president had waited until nearly the end of his term to raise the issue, if he planned to reinstate the tax exemption and if the administration tried to deal with it in the Republican tax cut legislation that Trump signed into law in December 2017. Spokesman Zach Parkinson referred us to the White House, which has not responded.

Trump’s focus on Biden and the Puerto Rican pharmaceutical industry comes in conjunction with his announcement in September of substantial new aid for the island, which was savaged by Hurricane Maria in 2017. On Sept. 18 the White House announced nearly $13 billion in grants to repair the island’s battered electrical grid and schools. It was a sharp reversal for the president, who was criticized for failing to help the island sufficiently after the devastating hurricane and swapped insults with Puerto Rican officials.

The White House said funding for the grants was authorized by the Bipartisan Budget Act of 2018, which included money for the Federal Emergency Management Administration to respond to Hurricane Maria. That law included language helping FEMA “to ensure that Puerto Rico rebuilds its critical lifelines, services, and facilities in accordance with current industry standards.”

The attention to Puerto Rico comes as the president is battling for the 29 electoral votes of Florida, a key swing state, which has a substantial Puerto Rican population. “I’m the best thing that ever happened to Puerto Rico. Nobody even close,” Trump said at a White House press briefing Sept. 18.

Much of the money approved by Congress to help Puerto Rico recover from Maria has not made its way to the island. A report by the Center for Investigative Journalism released in September found: “Of the $20.2 billion recovery funds allocation granted after Hurricane María through the Community Development Block Grant Disaster Recovery program (CDBG-DR), Puerto Rico has been approved to use only 16%, or, $3.2 billion. Of the money available, the government had used a mere 2%, as of June 30, the end of fiscal year 2020.”

Puerto Rico’s Pharma Industry

The saga of Puerto Rico’s drug manufacturing industry goes back to 1976. That’s when a Democratic-controlled Congress passed, and Republican President Gerald Ford signed, the Tax Reform Act of 1976. The measure, among other things, exempted manufacturers in Puerto Rico and other territories such as Guam and the U.S. Virgin Islands from paying taxes on their profits.

The change in the law attracted many pharmaceutical manufacturing firms to the island. A 1993 study by the U.S. General Accounting Office found that a substantial chunk of the tax benefits under Section 936 of the tax code went to drug companies. The burgeoning drug industry brought with it many jobs for Puerto Ricans.

But the exemption also cost the U.S. government a lot of money and came under fire as a tax loophole.

“One of the greatest examples of corporate welfare is Section 936 of the Internal Revenue Code, which gives corporations tax credits for opening and operating facilities in Puerto Rico,” Reps. Dan Burton, an Indiana Republican, and Peter Deutsch, a Florida Democrat, wrote in the Christian Science Monitor in January 1996. They said government studies showed the exemption costs taxpayers “billions of dollars” each year.

The repeal came later that year in the Small Business Job Protection Act of 1996, which, as we mentioned, also raised the minimum wage and passed easily with bipartisan support.

But in signing the bill, Clinton warned that the legislation “ignores the real needs of our citizens in Puerto Rico.”

While Congress allowed for a grace period of 10 years after it was passed, the legislation had an immediate impact, according to a report by the National Puerto Rico Chamber of Commerce. “[M]anufacturing immediately declined; less than one-third of those previously taking advantage of the law accounted for total manufacturing employment,” the report said.

Besides the chamber, articles on the subject chronicle job losses on the island. Some have said the end of Section 936 helped throw Puerto Rico into a recession.

“Not coincidentally, 2006 also marked the beginning of a deep recession for Puerto Rico, which has lasted until today,” wrote Scott Greenberg and Gavin Ekins in 2015 for the business-backed Tax Foundation. “When section 936 was repealed in 2006, foreign investment began to flee. … Since then, Puerto Rico’s economy has shrunk nearly every year, with unemployment at 12% and fewer than half of civilians in the labor force.”

But a report issued in 2016 by the Senate Finance Committee found that the impact of Section 936 has been exaggerated, although it did mean lost jobs for Puerto Rico.

Senate Finance Committee Report: The evidence does not support the claim that Section 936 was an important foundation for favorable economic expansion in Puerto Rico when it was in force or that the termination of 936 was an important factor bringing about the severe recession, which began in 2006. There is limited evidence that firms’ switch [in] status contributed to some extent to the employment decline of the recession. The firms themselves, however, have remained in good condition, as indicated by their post-2006 exports, and plant closings in recent years do not appear to have any substantial relation to the termination of 936 or other tax factors. The 936 myth should be abandoned.

In recent years, of course, the island’s economy has been pounded by Hurricanes Maria and Irma and now by the COVID-19 pandemic. An article in Forbes in March argued that imposing new exemptions for pharmaceutical manufacturing in Puerto Rico could help revive the island’s battered economy.

Trump went too far when he said that the island’s pharmaceutical industry had been “shut down” or “obliterated.” While the end of the exemption cost Puerto Rico jobs, the island’s drug industry did not entirely vanish as a result.

According to the Food and Drug Administration, in 2016 about 30% of Puerto Rico’s gross domestic product consisted of drug and medical device manufacturing, and 8% of U.S. pharmaceutical expenditures were for products manufactured in Puerto Rico. The island is home to 49 pharmaceutical firms, according to the Puerto Rican government.

So, yes, Biden voted for a bill that led to fewer drug manufacturing jobs in Puerto Rico. But Trump’s attacks are overstated. And while Trump claims he would reinstate the tax exemption for manufacturers, the GOP 2017 tax law didn’t address it.

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