Before 1996, the tax code gave makers of drugs and medical devices favorable treatment for manufacturing products in U.S. territories, such as Puerto Rico. At that time, Puerto Rico was the American engine of pharmaceutical and medical device manufacturing. Many, if not most, domestic companies had a presence there. In an effort to curb “corporate welfare,” however, the Republican Congress passed and President Clinton signed the Small Business Job Protection Act of 1996, which phased out the tax exemption. The results were predictable.
The manufacturers reduced or eliminated their operations in Puerto Rico, moving them to China, India and Ireland, which welcomed their presence with favorable economic policies.
Another law passed in 2017, the Tax Cuts and Jobs Act, further discouraged manufacturing on the island [Puerto Rico]. Under the act, income generated from the Puerto Rican operations of U.S. companies is treated as foreign income and subjected to double taxation.
Pictures of boxes, all marked “Made in China” at a Kroger pharmacy: