Repeal of Section 936 Tax Incentives

Section 936 of the Internal Revenue Code, enacted in 1976, provided tax exemptions for U.S. corporations operating in Puerto Rico. Under the provision, companies could repatriate profits earned in Puerto Rico to the mainland tax-free, while also avoiding local taxes through negotiated agreements with the Puerto Rican government.

The incentive attracted major pharmaceutical companies, electronics manufacturers, and other corporations. By the early 1990s, Section 936 companies employed over 100,000 Puerto Ricans and accounted for approximately 45% of the island's GDP.

In 1996, Congress began a 10-year phase-out of Section 936, fully eliminating it by 2006. The consequences were devastating:
- Manufacturing jobs declined by 30% between 1996 and 2010
- Real GNP contracted in 8 of the 10 years following the phase-out
- Population declined as workers left the island
- Government revenue fell sharply
- To compensate for lost revenue, Puerto Rico borrowed heavily, issuing billions in bonds

The phase-out was driven by mainland political calculations — critics argued the incentives were corporate welfare. Puerto Rico had no vote in Congress and could not lobby effectively against the repeal.

The loss of Section 936 is widely recognized as the single most important factor in Puerto Rico's subsequent debt crisis. The decision was made entirely by Congress without Puerto Rican representation, and its consequences have been borne entirely by Puerto Ricans.