the blue collar worker, the middle class, the teacher, the policeman, the professional has to pay very high taxes.

Now I believe that as we provide for a phaseout, a gradual phaseout of 936 after a number of years of leaving it as it is, that then Puerto Rico could be steered into a more balanced economy. One of the things that we have now is that we do not have investors coming to Puerto Rico on a long-term basis because of this ambiguity in the question of status.

I believe that statehood will bring about many investments to Puerto Rico of people that will be investing not merely because there is a tax exemption but because there are other advantages— climate_advantages, strategic position and market advantages in Puerto Rico, the advantages of our developed manpower and so on, tourism and other elements.

So I think that as we go through this gradual process the economy of Puerto Rico will be strengthened. Let me point out, Mr. Chairman.

The CHAIRMAN. Let me ask you this question.

Mr. CORRADA. The difference between Puerto Rico and the poorest of the states, instead of closing that gap over the last 10 or 15 years, that gap has been broadening, so something needs to be done in economic tax policy.

The CHAIRMAN. In your statement you say we should have a transition period on section 936 of, I think, 15 years with no change and a 10-year phaseout, if we do not otherwise agree.

Mr. CORRADA. 10 and 15. 10 of no change, 15 of gradual phaseout, and then over a 25-year period.

The CHAIRMAN. The Congress and particularly the Finance Committee will have to make that judgment on section 936, and we will give our advice as well.

I cannot conceive that the Congress would allow for a transition period as long as that, although it is surely an undecided issue. The Finance Committee has not even addressed it. We have heard some testimony, but our Committee has expressed no opinion.

Within that context, I can say that in my judgment the phaseout period would be probably less than 10 years, but let us say that there is a phaseout period provided of something less than 10 years for section 936.

And I know that would be too short for your preference. But could Puerto Rico's economy prosper under a statehood alternative in which 936 is phased out within a period of 10 years or less?

Mr. CORRADA. Sure, why not? All the 50 States of the Union have prospered in their economy, are more industrialized than Puerto Rico, and they do not have section 936. Hawaii does not have section 936, and they have the highest per capita income in the country.

But we have to eliminate the addiction to section 936, and we have to eliminate utilizing section 936 as an ideological weapon against statehood and for commonwealth. And that is why I believe it is important that whatever phaseout period the Ways and Means Committee and you choose, that it be uniform under the three formulas.

I do not think that we Puerto Ricans and American citizens should be saying that we cannot aspire to equality in our citizen

ship because some companies will shut down and will leave us. I think that the dignity of the people of Puerto Rico is way above economic expediency.

The CHAIRMAN. Senator McClure.

Senator MCCLURE. Presumably under statehood you would have two Senators and a number of Congressmen. Would you be satisfied to leave the status of 936 to future determination by the Congress of the United States rather than a guarantee?

Mr. CORRADA. Well, the situation now is, of course, that the Ways and Means Committee and Congress could eliminate by a stroke of the pen section 936. I think that it would provide a certainty if we had some provision that section 936 would remain untouched for a number of years.

Because investors would know well, this is not going to change. In 1982, there was an attempt to eliminate section 936. In 1986, there was another attempt. I think that if in this bill, or in a separate bill, but addressing the question of section 936, a fixed period is allowed under which Congress would not touch section 936, and then the gradual phaseout, I think that would be the proper approach to address this issue, Senator McClure.

Senator MCCLURE. There are a number of tax provisions in the Code that do deal with the economic requirements of various regions of our country. None of those are guaranteed for any period of time.

There is a great movement, which frankly I support, for the establishment of enterprise zones, and the enterprise zones would be applied uniformily throughout the United States on criteria established in that legislation. Puerto Rico might or might not qualify. But that is an example of the kind of economic work that is done by the Finance Committee through the Tax Code with respect to the tax treatment of areas that need some economic assistance. Is that not a sufficient guarantee of fair treatment for Puerto Ricothat if you achieve statehood, that you do not need a guarantee of any continuation of 936?

Mr. CORRADA. In a sense, Senator, you are right. There is no tax provision in the Tax Code that I know of that has a guarantee that it may not be changed by Congress. On the other hand, of course, we all know that Congress does not tamper with tax law every year. I mean, once every four or five years.

Senator MCCLURE. That is to be devoutly hoped, but we have a member of the Finance Committee here so I will be very careful how I answer that.

Mr. CORRADA. But the point that you have raised, Senator McClure is very interesting and very important. It shows that there is life beyond section 936 in the sense that there can be other tax policies such as the enterprise zone approach, such as accelerated depreciation, such as investment and employment tax credits that may be tailor made for areas within the nation that have a higher level of unemployment, or a higher level of poverty.

And Puerto Rico could then participate under the provisions of such tax programs.

Senator MCCLURE. Thank you very much. You know, it is said that there are only two things that are really certain. One is death

and the other is taxes. But at least death does not get worse every time Congress meets. [Laughter.]

Thank you very much.

The CHAIRMAN. Senator Moynihan.

Senator MOYNIHAN. I would say to my friend, Senator McClure, that there is a third certainty, and I think Baltasar my good friend would agree, that every other year, Congress does change the tax law. Thank you very much for allowing me the courtesy.

The CHAIRMAN. Thank you very much, Mr. Corrada, for an excellent statement.

Mr. CORRADA. Thank you very much, Mr. Chairman, and distinguished Senators.

The CHAIRMAN. Next, we are very pleased to welcome our old friend Don Jaime Benitez, with whom we served for so many years in Congress. Don Jaime, we are glad to see you looking so good and healthy. You look better than your juniors whom I see in the audience. Glad to have you here.

STATEMENT OF JAIME BENITEZ, FORMER RESIDENT

COMMISSIONER OF PUERTO RICO

Mr. BENITEZ. First of all, I wish to thank the panel, thank Congress for the clarification of the citizenship issue. As was indicated by Senator Johnston, the whole issue was distorted by a misinterpretation of the report you received on what happens under independence.

I understand that you said—and please rectify if I am wrongthat under statehood or under commonwealth the people of Puerto Rico have nothing to fear about revocation of American citizenship, that the whole issue turns on what would be the case once independence was accorded or received.

And, of course, those of us who believe in commonwealth are not concerned with that alternative, although we have our own ideas concerning the same. But let it be clear that under commonwealth no problem with American citizenship, irrespective of what some of the proponents of statehood may wish were the case.

Now, of course, I know that my paper goes beyond the ten minutes so I will be skipping from several positions. I must say that I have come to testify as a concerned citizen on behalf of Puerto Rico's quest for self-affirmation, autonomy and democracy.

We are seeking to stabilize a relationship within the culture of freedom in accordance with our own political experience. I believe these goals are best served for Puerto Rico by an enhanced form of commonwealth.

Ours has been a historical odyssey, a century-old struggle to establish ourselves as a distinct political community, entitled to exercise autonomous self-government and to establish lasting and mutually acceptable interrelations in the nature of a compact with the metropolitan authority, be it Spain in the 19th century or the United States in the 20th.

Since early in the 19th century, the ideological alternatives of Puerto Rico have been, at least in theory, the same three: incorporation as an equal province or state, separation as an independent republic, or recognition as a self-governing unit, linked to its

former metropolis, in common citizenship, common defense, common currency, common trade, and, I may add, common sense. There are no utopias. Thomas More's dream was creative and legitimate shortly after Columbus discovered America; by the end of the 20th century it is no longer tenable as a political objective.

But I must say that for the first time through those 150 years the representatives of the metropoli or of the other community have come to hear us and at the same time the representatives of the three main parties have joined in an effort at a clarification and a decision, final decision by the electorate itself.

Such an approach has the full support of Puerto Rico, and I wish to thank the members of Congress for agreeing into this initial stage. We appreciate that they are representatives of the Senate, and that we have a long way to go, and that is why it is legitimate also to try and shorten the deliberation process in order to be able to agree on something before the next general elections in the states and in Puerto Rico.

Now I will start jumping around and say that perhaps the declaration of our charter of autonomy of 1897, and the presentation of motives should serve all of us. It said: For when it is proposed to entrust the direction of their affairs to peoples that have attained their majority, either autonomy should not be offered them at all, or it should be given to them complete, in the conviction that they are thus put on the path to prosperity unhampered by restrictions or impediments springing from mistrust or suspicion.

Now, reference is made to the war of 1898 which the Secretary of State John Hay called the splendid little war where the autonomy we had recently received was lost. Then I continue in a long statement addressing the history of this whole situation. The outstanding educator of Puerto Rico, Eugenio Maria de Hostos, whose bicentennial celebration has been held this precise year went to see President McKinley and said to him, President McKinley, the only way to justify this annexation is through a plebiscite where the people of Puerto Rico should vote yes or no concerning the annex

ation.

President McKinley unfortunately paid no attention to it, and neither did the political leaders in Puerto Rico. And they did not because they took for granted that we have immediately self-government and shortly afterwards we would be incorporated as a state. Well, it did not happen that way.

The Foraker Bill of 1900 was an incredibly offensive bill at that date in the political aspect, although it was extremely reasonable and generous in the economic aspects. I even describe it as puritanical at that time. The United States said no taxation without representation. No representation, taxation would be tyrannous, and so they established a norm, which lasts to this day and which has been an important factor in the history of Puerto Rico-no taxation in Puerto Rico.

But aside from that they took other power. The President of the United States would appoint the governor and his staff and something that was called the executive council which would act as an appointed senate. And there was a great deal of protest in Puerto Rico. So the decision came whether that was possible, or not, whether the law which, for one year, established a 15 percent tariff

applicable to Puerto Rico so Puerto Rico would have some funds because the monies would be turned over to Puerto Rico.

And the situation was decided that it was valid even though it conflicted with the principle of Article I, section 8, that all duties, imposes, and excises shall be uniform throughout the United States. It was refused because Justice Brown explained that Puerto Rico is not part of the United States. Puerto Rico belongs to but is not part of the United States.

That imperial expression offended all of us deeply. It required and has received ample rectification. Seventy years later it was my opportunity as Resident Commissioner with other representatives of the Government of Puerto Rico to persuade Congressman Wilbur Mills to take advantage of the fact that Puerto Rico is not part of the United States to establish what came to be section 936 of the Revenue Tax Code.

It was possible to create section 936 because we were not a state. Is that light on? All right. Then I am ready for any questions that you may wish, or I will keep on reading.

[The prepared statement of Mr. Benitez follows:]