Section 936 Tax Credit

In 1993, as part of its deficit reduction program the Clinton administration proposed a $6.7 billion reduction in the Section 936 tax credits for U.S. mainland firms that operate facilities in Puerto Rico. The Clinton proposal would also change the credit from a function of net income to a function of wages paid in Puerto Rico. Pharmaceutical companies, most of which had located in Puerto Rico because of the tax credits, would be hit particularly hard by the change, with Pfizer’s and Upjohn’s total profits projected to decrease by 13%. The case identifies the interest group politics associated with the Clinton proposal, the relationship between those politics and Puerto Rican politics, and the progress of the issue through Congress. As amendments were introduced, the coalitions of interest groups shifted as a function of the incidence of the credit. The focus is on the strategies used by interest groups, primarily the U.S. mainland companies, in attempting to affect the outcome.