Congressional Bill H. Res. 1553 Introduced to Address Federal Tax Loophole for Act 22 Decree Holders
Washington, D.C. – On October 26, 2024, Representative Nydia Velázquez (D-NY) introduced H. Res. 1553, a resolution expressing the sense of the House of Representatives that the federal government must take action to address a tax loophole that allows Act 22 decree holders to legally evade federal taxes.
Background
Act 22 is a Puerto Rican tax incentive program that grants tax exemptions to individuals who move to the island and invest in certain industries. While the program was originally intended to boost economic development in Puerto Rico, critics argue that it has been abused by wealthy individuals seeking to avoid paying taxes.
The Tax Loophole
Under the Internal Revenue Code, U.S. citizens who live outside the United States for at least 330 days per year can exclude up to $112,000 of their foreign-earned income from federal taxes. Act 22 decree holders can take advantage of this exclusion by establishing a residence in Puerto Rico for just 183 days per year.
Impact on Tax Revenue
The Government Accountability Office (GAO) has estimated that the Act 22 tax loophole costs the U.S. Treasury billions of dollars in lost revenue each year. In 2021, the GAO found that Act 22 decree holders excluded a total of $1.3 billion of income from federal taxes.
H. Res. 1553
H. Res. 1553 expresses the sense of the House of Representatives that the federal government must take responsible and timely action to address the Act 22 tax loophole. The resolution calls for the House Committee on Ways and Means to hold hearings on the issue and to develop legislation that would close the loophole.
Support for H. Res. 1553
H. Res. 1553 has received support from a number of organizations, including the Center on Budget and Policy Priorities, the Institute on Taxation and Economic Policy, and the Puerto Rico Fiscal Agency and Financial Advisory Authority.
Opposition to H. Res. 1553
The Puerto Rican government and some business groups oppose H. Res. 1553. They argue that the tax loophole is necessary to attract investment and create jobs in Puerto Rico.
Next Steps
H. Res. 1553 has been referred to the House Committee on Ways and Means for consideration. The committee will hold hearings on the issue and will likely develop legislation to address the tax loophole.
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