and Arthur Laffer
Copyright © 2004 by Alexander Odishelidze
Pay to the Order of Puerto Rico
by Alexander Odishelidze
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Table of Contents
Foreword Lawrence Kudlow............................................9
Introduction 1 Alexander Odishelidze...................................13
Introduction 2 Arthur Laffer .................................................19
Section I Economy.......................................................25
Chapter 1 My Odyssey to Freedom ...............................27
Chapter 2. The Last Colony............................................39
Chapter 3 America Delivers...........................................51
Chapter 4 The Price of Dependence ..............................59
Chapter 5 Pitorro and Panas
(Moonshine and Breadfruit)..........................95
Chapter 6 The American Taxpayer’s Commonwealth
Chapter 7 Making Lemons into Lemonade .................159
Chapter 8 Biography of a Tax Gimmick......................173
Pay to the Order of Puerto Rico
Chapter 9 The Young Bill: The Roar of the Coqui ......215
Chapter 10. Eulogies for the Young Bill.........................257
Chapter 11 The Cries of Patriots....................................291
Chapter 12 The Eternal Territory...................................303
Section III Character ...................................................319
Vignette 1 Moncho’s Other Family Business ...............321
Chapter 13 Mainlining Our Kids ...................................329
Vignette 2 A New Friend of Commonwealth ...............351
Chapter 14 Welcome to the Laundromat a la
Section IV Identity .......................................................379
Chapter 15 “Mejorando La Raza”
(Improving the Race) ..................................381
Chapter 16 The Last, Full Measure ...............................399
Chapter 17 More Than a Hero, Less Than a
Afterword Alexander Odishelidze.................................439
I wish I had the space to thank all those who have helped me
develop this book over the years. However, the people that
deserve particular mention are: Chuck Donovan who has been my
relentless Editor/Researcher who added the depth to this work that I
could not have achieved on my own, Professor Gonzalo Cordova,
Ph.D. who has given me the cultural and racial insights into Puerto
Rico and Manuel Rodriguez Orellana who originally opened my
eyes to the Puerto Rico political status dilemma.
The United States was founded on economic and political freedom.
A “City on the Hill,” to use Ronald Reagan’s phrase,
metaphorically describes American exceptionalism. This freedom
enables all our citizens to successfully pursue unlimited opportunities
to use their God-given talents to work, produce, take risks,
invest, and grow wealthy while keeping the prosperous fruits of
All too often in the 20th century, opportunities to do just this
were being taken for granted. But not by a young Alex Odishelidze,
who risked life and limb to escape communist oppression and make
a new start in America.
Mr. Odishelidze’s passion to succeed in business should be
taught in American business schools. As World War II raged across
the European continent, a young Alexander Odishelidze witnessed
carnage by Communists and murder of his own family members in
his mother country. He vividly recalls indoctrination through loudspeakers
placed in the public squares, and before his escape to freedom,
first in Canada and then New York, was honored by Marshall
Tito for his devotion to the Party.
He charged head-first into the insurance business and was
quickly spotted as a go-getter. And no one was going faster than
Alex Odishelidze. With every deal, every sale, every promotion, he
knew that more opportunities were around the corner.
Through his work in the insurance industry, Mr. Odishelidze has
Pay to the Order of Puerto Rico
uncovered a gaping hole in Puerto Rico’s economic system. U.S.
companies can now not only manufacture their products in Puerto
Rico tax free, but also assign the licenses to manufacture those
products to its Puerto Rican subsidiaries and keep the tax-free profits,
even if the actual work was done in China or elsewhere. This
takes even more jobs from American workers. Americans are subsidizing
Puerto Rico to the tune of $22 billion per year!
My dear friend Arthur Laffer, who nearly single-handedly revolutionized
American economic thought, brings a great deal of
insight to this book. By developing the Laffer Curve, he captured
the incentive effects on work and investment from changing taxrates.
Dr. Laffer shows how higher after-tax economic rewards from
lower tax-rates will expand the economic pie as human behavior
responds to growth incentives by supplying added work, investment,
and risk-taking. In short, when it pays more, after-tax, to
work and produce, then people respond immediately. As a result,
rising national income and production from lower tax-rates actually
throw off higher tax revenues within a relatively short time.
For years, Art Laffer has advised top Puerto Rican officials and
is in a unique position to analyze this situation. In 1979, Art Laffer
drafted a report for the incoming governor of Puerto Rico on how to
mend the island’s economic ills. He notes that the purpose of this
book is to shine more light on the myriad opportunities for
Laffer points out that in 1987, Puerto Rico cut the top marginal
rate on personal income taxes. A respected study showed that
Puerto Rican taxpayers declared 50 percent more income than the
previous year. The total number of taxpayers increased by one third
and total tax revenues increased by 28 percent.
These extremely able and insightful men have combined their
efforts to show the American people that the current support system
for Puerto Rico is unfair to American taxpayers and unjust for the
residents of Puerto Rico. However, unlike the days when empires
ruled colonies around the world, rules and regulations could be
changed by executive decision.
Such is not the case with Puerto Rico. Only the Congress can
alter Puerto Rico’s status. Numerous Members of Congress from
diverse parts of the country agree with Odishelidze and Laffer’s
position to allow Puerto Rican self-determination. However, many
Americans are unfamiliar with Puerto Rico’s unique status and its
impact on the American economy. Odishelidze and Laffer provide
an eye-opening look at how Puerto Rico’s status siphons tax dollars
from hard-working Americans, while impeding its own economic
The authors give a detailed chronology of Section 931 of the
Internal Revenue Code. From its inception in 1921, which
exempted from federal income taxes all income of individuals and
corporations that originates in U.S. possessions, including Puerto
Rico, subject to certain key limitations.
Mr. Odishelidze and Dr. Laffer reveal key facts about Puerto
Rico under this system such as the fact that unemployment has
risen significantly and has outpaced that of the mainland United
States. They also show the intense lobbying efforts by pharmaceutical
companies and other U.S. concerns to preserve the status quo in
Puerto Rico’s tax system.
This tax structure, while well-meaning in the early 20th century,
no longer has any purpose in the Puerto Rican economy, and in fact,
is counterproductive. During the more than eighty years it has been
in effect it has only helped to create jobs in a fifteen to twenty year
Odishelidze and Laffer show that every working middle and
upkeep of Puerto Rico.
Yet, what are the results of this misguided tax and political
status policy when we compare Puerto Rico to the other fifty states?
Puerto Rico is second in out-of-wedlock births, fourth in high
energy costs, and dead last in per capita income. The United States
has also spent billions on improving Puerto Rico from 1981-2001.
Some of those expenditures include: Food Stamps, $19.25 billion;
Educationally Deprived Children Program, $3.59 billion; nearly $1
billion on public housing and a half billion dollars on a school
Even more alarming, grants given to Puerto Rico from the
United States account for significant portions of local departmental
budgets. For example, the Public Housing Administration in Puerto
Pay to the Order of Puerto Rico
Rico received a grant of $200 million from the federal government.
This accounted for 92.9% of its budget. The Puerto Rican
Education Department received $875.9 million, which accounts for
35% of its budget.
The poverty level in Puerto Rico is extremely high, despite a
close relationship with the United States.
The authors also demonstrate how Washington works with the
1996 effort to change Puerto Rico’s status. Mr. Odishelidze shows
the strong power of the pharmaceutical lobbies, which benefit handsomely
from Section 936. He takes the reader inside breakfast
meetings with then-Vice President Al Gore and stands his ground
against the Vice President’s skepticism.
The authors go on to document that the United States is not
getting a return on its investment. They make the case that the
federal government should move away from the current system of
tax subsidies for corporations. They show that Puerto Rico has
splendid opportunities ahead of it, but needs a new fiscal system to
realize its long-term potential. The work of Alexander Odishelidze
and Arthur Laffer will surely open that discussion.
If anyone had told me 43 years ago, when I first came to America,
that the years of my youth in Nazi-occupied Belgrade and later in
Communist Yugoslavia would drive me to develop a passion for
Puerto Rico’s self-determination, I would have advised them to
seek professional help.
Back then ideology wasn’t even on my radar screen. I was 19
years old and I had just arrived in the land of my fantasies,
America, the land of opportunity that made millionaires out of
anyone who dared dream the dream. I was here, in the country of
gleaming alabaster cities and amber waves of grain, where you
could open a business, make a profit and not have to go to jail for it.
Your only price for this great privilege was just to pay a few dollars
in taxes, and only if you made the money. How much better could
To most native-born Americans, raised in the protective cocoon
of this nation’s freedoms, the above words may seem silly, even to
the point of being ridiculously obvious. Perhaps it is precisely
because those freedoms are so obvious that they are ignored by
those who were born here, where the main focus in life becomes a
good job, a house in the suburbs, and a gold watch when the
company puts you out to pasture. If you were raised, however,
where those “obvious” freedoms did not exist, coming to America
allows you to see them clearly, to touch them, to feel them, and to
mold them into a life of unimaginable possibility.
Pay to the Order of Puerto Rico
In the beginning, I thought that the freedom to accumulate capital
was the only thing that mattered. It wasn’t until some 25 years
later, when I no longer needed to amass capital in order to live my
lifestyle, that I discovered that capital was not an end in itself. It was
merely the measure of progress in only one department. Life, I
learned, had many other, equally if not more important departments.
Even today, I hear people ask me about some of the things that I
do now. The question comes up time and again in discussions of my
efforts in support of Puerto Rican self-determination: “What’s in it
for you?” Anywhere else and this question would be pure cynicism.
Here in the United States, I have found, people ask the question
with a kind of cynicism that is anxious for idealistic reassurance.
The question often means, “Please persuade me that there is some
altruistic reason for your actions.”
This book was written in response to that question. It seeks to
answer whether there is an altruistic position on Puerto Rico’s
future and to urge people of goodwill to take that position and
pursue it to its conclusion. My colleague Arthur Laffer and I have
written these words with that aim in mind. In these pages the reader
will learn some details about my early life and how I came to New
York City and its Puerto Rican neighborhoods, and, through them,
to a business career in San Juan and the Caribbean. This journey
from wartime and tyranny, to sunshine and liberty, was not unique
to me. Many others, from every corner of the globe, have made this
trek. What compels me to write is that, because my destination was
Puerto Rico, this journey is incomplete.
In the vignettes and chapters that follow, we lay out the essential
nature of Puerto Rico’s economy, status, character, and identity.
Because we seek change (change with the goal of permanence), we
write a great deal that is critical. Because human beings – Puerto
Ricans, mainlanders, lawmakers and lobbyists, businessmen and
politicos – are at the center of this drama, it is a tale of courage and
conviction, of flaws and folly. The underlying theme here is not
criticism, however, but love: of equality, prosperity, human fulfillment,
and the blessings of freedom. We merely want to see these
blessings secured for an island whose courageous though, like all of
us, flawed people we have come to know and love.
The legal status of Puerto Rico lies at the physical center of this
book, and it truly is the heart of the matter. We argue that the dependent
notion of the current territorial status cannot last, that it is colonialism
in modern dress. We make the case for what either
independence or statehood, both of which are permanent forms of
self-government, will accomplish for Puerto Rico. In fact, each of
us has been making this case for many years, and in the course of
our labors we have come across some of the best and the worst in
our fellow citizens.
At this point, you may be asking yourself, “Why, as a resident
of the U.S. mainland, should I care about these issues involving
some distant island in the Caribbean?” My answer is simple:
“Because this distant island is costing you, the American taxpayer,
more than $22 billion a year to maintain.” That’s about $400 for
every American tax-paying family. You are offering up this sum of
money (which is growing every year), and the typical Puerto Rican
is gladly receiving it, but neither you nor that average resident of
Puerto Rico is likely to know all the adverse ways in which this
transfer is affecting the well being of both parties to the transaction.
Bringing up the truth about U.S. dealings with Puerto Rico
makes a great many people uncomfortable these days, whether they
live on the mainland or on the island. Allow me to relate an example.
I first met the plainspoken Congressman Dan Burton in the
early 1990s. Burton, an Indiana Republican, was a key member of
the House International Relations Committee. We had just begun
our efforts to eliminate the obscenely expensive tax shelter called
Section 936 that was funneling profits through Puerto Rico but
doing precious little for its people. We were also working on the
closely related matter of Rep. Don Young’s bill to fashion the first
real Puerto Rican plebiscite on its future status. Burton came down
to Puerto Rico for a visit. I had heard he was an avid fisherman. I
made arrangements for a fishing trip with Mike Benitez, a local
deep sea fishing professional who was well known for his ability to
deliver a solid catch for those who booked his services.
Before the fishing trip, which was to take place the day after
Mr. Burton arrived, I had arranged for him to speak at the local
Rotary club. These were the first days of our struggle to set the
record straight on what Puerto Rico’s status really was. We wanted
our fellow business and community leaders in San Juan to know
Pay to the Order of Puerto Rico
that we did have a problem and that it was in the best interest of
Puerto Rico to have it resolved once and for all.
Up to this point, the majority of Puerto Ricans actually believed
that the island had some kind of special status, that it was outside
the territorial clause of the U.S. Constitution, and that it had some
kind of “bilateral agreement” with the United States that made this
status permanent and impossible to change without mutual consent.
During the luncheon, when Dan Burton began talking about a
change in Puerto Rico status that could be initiated at any time by
the U.S. Congress, there were a lot of exclamations of surprise
among the audience. Tarring and feathering is out of fashion these
days, but it wasn’t hard to imagine bread rolls flying through the air
at the visiting congressman.
During the question and answer period, one indignant attendee,
who was visibly shaken by Mr. Burton’s words, stood up and, in a
voice bordering on panic, asked, “But isn’t Puerto Rico an
‘Associated Free State’ of the United States and isn’t that association
based on an unbreakable ‘compact’?” Mr. Burton, with his
usual blunt honesty, blurted back, “I don’t know of any ‘compact’
between Puerto Rico and the United States. All I know is that
Puerto Rico is under the U.S. territorial clause, a possession of the
United States, and that Congress can change that relationship any
time it wants to and, besides, if there were any agreement between
Puerto Rico and the United States passed by Congress that I do not
know about, it is a simple fact that the acts of any one Congress do
not bind the actions of any future Congress.”
The audience was shocked by this reply. It was the first time
that any member of the U.S. Congress had told the people of
Puerto Rico the truth about their status. The next day, the local
newspapers had a field day with Mr. Burton’s comments. Some
accused him of being uninformed. Others were outraged that a
representative from Washington had dared to question Puerto
Rico’s “sovereignty.” As events over the next few years bore out,
Mr. Burton’s plain talk was right on the mark. Congress could alter
the terms of Puerto Rico’s relationship with the United States by
majority vote. In the end, the passage of Rep. Young’s bill in the
House of Representatives left no doubt about Puerto Rico’s current
status. Today Puerto Ricans are no longer kidding themselves
about the bill of goods sold to them by Muñoz Marin.
The next day we went fishing as planned, and I brought along
my son Michael to meet Mr. Burton. They got along very well
because Mr. Burton was an Indiana State graduate and Michael
graduated from Purdue, so that during the trip they were constantly
razzing each other about their respective alma maters’ football
teams. I think that Mr. Burton must have won the arguments, not
just with the people of Puerto Rico but with Michael, because,
toward the end of the day, Michael got violently sick (which he
never does, because he has been raised on boats) and emptied his
stomach onto Mr. Burton’s sneakers. It was the second day in a row
that Mr. Burton had given some of his hosts a little nausea.
For the first time in history, Mike Benitez, the famous fisherman
who guarantees every customer a catch, came back empty-handed.
Our group didn’t even get a strike. I guess all the fish in Puerto
Rican waters that day must have been busy debating the status
issues Mr. Burton had raised to the Rotary audience. Even they had
lost some of their appetite.
A final word about the organization of this book. I am a semiretired
businessman who has lived and worked many years in
Puerto Rico. Some of the chapters that follow tell the story of my
transit from Eastern Europe to the States and finally to the
Other chapters tell the full story of the Young bill and those who
worked for and against it, describe the dilemmas posed by Puerto
Rico’s massive role in the drug trade and money laundering, and
ponder the meaning of Puerto Rican identity in our rapidly changing
world. All of these chapters contain first-person narrative. The
vignettes at the beginning of Chapters 13 and 14 are fiction, depictions
of various aspects of Puerto Rico’s social dilemmas. These
vignettes are in third person.
Arthur Laffer, as he relates in his introduction has seen Puerto
Rico as an adviser who has made a tremendous impact on both U.S.
and Puerto Rican economic policy. His analysis is set forth in
Chapters 4, 6 and 8, and he has given me excellent advice on the
other chapters that touch upon Puerto Rico’s economic well-being,
specifically the chapters on the drug trade and money laundering.
The remaining chapters and stories are all my own, and I am solely
Pay to the Order of Puerto Rico
responsible for their content.
“What’s in it for me?” My answer is: “If you have a couple of
hours, let me tell you my story and perhaps then you might understand.
But I will give you one clue; it is what America is all about.
And it is about what all the Americas can be.”