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brigands that infest Puerto Rico,...would, of course, be a serious obstacle to the maintenance there of an efficient government." (Em. Sp.)

from the mouth of babes! No wonder it has taken us so long to get out from under our "pupilage" if this phraseology represents the contemporary thought among the intelligencia of the time when our future was being decided !

May God grant this Congress a better perspective view !

Mr. Baldwin faith in Congress was emphatically expressed thus: "... where constitutional law and legislative policy may come in conflict, every presumption is to be made in favor of the good faith of Congress and the exercise of its discretion." (Em.Sp. at P. 411)

This brings to mind that cynicisn which states that, "THE WAY TO HELL IS PAVED WITH GOOD INTENTIONS"

OUR NEW POSSESSIONS- James B. Thayer, 12 Hv. L.R. 464

At p. 481 Thayer expostulates that "One sees no anxiety (in the founding Fathers) as to the status of people belonging to regions then ceded to the National Government.... That was a matter attended to in the cessions...and it might be fairly be presumed that it would be attended to in future cessions... What was appropriate in the case of some territories might not be in other cases." (Em.Sp.)

And at p. 484 the author proposes POLICY and says:

2- The case of Hawaii should await the settlement of the general problem now coming into view, arising out of these new dependencies. The case of all the islands will be in many respects the same. They should all be dealt with together." (Em.Sp.)

This author believes that such is the Congressional intent at this tine and that the Hawaiian experience will be your guiding light in the solution to Puerto Rico's final status.

THE STATUS OF OUR NEW POSSESSIONS- Lowell, A. L., 13 Hv. L.R. 155

Initially the author states that the "subject is of such supreme importance that any suggestion from a new point of view may have value out of proportion to its own intrinsic merit. The questions presented... will have to be worked out from the exiting law...not by reversing established principles, but by seeking how far they are applicable to the new condition." (Em. Sp.)

Perhaps now would be a good time to look at State papers of the time to pursue the "intent" behind Par. 2 of Art. IX of the Treaty of Paris of 1899, this could be the new point of view needed !

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The above stems from Lowell's next two pronouncements:

At p.171 he says, "A11 the treaties for the acquisition of territory ...have therefore provided that the people should be incorporated into the Union, or admitted to the rights of citizens....The joint resolution for the annexation of Hawaii may, perhaps have the same effect...But the recent treaty with Spain makes no such provision." (Em.Sp.) And he goes on to say in p. 172 that "Hence it is clear that the Government can acquire possessions without making them a part of the United States, it has done so in this case (Treaty of Paris).* Upon the question whether such a course is legally admissible or not, no light can of course be obtained from the language of the Original Constitution, because it did not contemplate any enlargement of territory at all..."(Em, Sp.)

And a final admission makes mandatory the proposed evaluation of the Treaty when Lowell recognizes at page 176, that the judicial "...authority upon this question is certainly meager, but the weight of it, such as it is, inclines decidedly to the view that apart from treaty or legislation, possessions acquired by conquest or cession do not become a part of the United States." (Em. Sp.)

ANNEXATION AND CONSTITUTIONAL LAW - J. Gorham Palfrey, 13 Hv. L.R. 371

The author starts with the proposition that the "...interpretation

of a constitution) varies- rightly or wrongly- as varies the legislative mind of the people. $ (372) "...we must know these doctrines sanctioned by public opinion which ... were not made a part of the constitution, in order that when public opinion in regard to them is seen to have changed, we may say the constitution does not forbid this change'."

The legislative mind of the people might be ascertained from the following exchange between Jefferson and Monroe on the polity of annexation of Cuba "I candidly confess that I have ever looked on Cuba as the most interesting addition which could ever be made to our system of States." in a letter dated October 24, 1823 and cited by the author as Jefferson's support of Adams Conception that the taking of Cuba was "as politic as the taking of Florida" had been. (Em. Sp.)

Since both gentlemen mentioned above were contemporaries of the constitutional convention let us take their idea and make Puerto Rico " the most interesting addition...ever...made to our system of States".

The final and, to me most important, appreciation of the issue made by the author comes at p. 398-399 in these words:

"The Constitution created within its sphere a complete sovereign; and although the sovereign powers...may be used unadvisedly and unjustly, there are no constitutional restraints upon such use. I believe they have been so used during the past year (1898), but I

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shrink from befogging (399) the issue, which is moral, by contending for an improper view of the legal power of the United States. In the heat of a legal argument one is apt to conclude

this is legal, therefore it should be done', forgetting that it is wrong, therefore it should not be done'. And the great changes in public opinion, eliminated from the law and considered by themselves, deserve our gravest thought. Those who believe as I do...that our form of Government must first justify itself at home before we take upon ourselves further burdens, see in our present course cause for disquiet. * In all events these are political matters. So grave that they would submerge any constitution; and whatever side one takes, it may be questioned whether he strengthens his position by calling to his support forced' doctrines of constitutional law." (emphasis supplied)

The decision facing this Honorable Committee is thus put in its true perspective by someone who lived through the troubled tines in which the soul of America was being put to the test all these writers recognized and agonized over. If sood intent has led to bad results, let us purge our wrong, the issue continues to be moral and political and forced doctrines of constitutional law' should no longer befos the issue".

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The CHAIRMAN. Thank you, very much, Mr. Belaval. Finally, we have Mr. Costas Elena. STATEMENT OF LUIS P. COSTAS ELENA, SPECIAL ASSISTANT TO

THE GOVERNOR OF PUERTO RICO Mr. COSTAS. Honorable Senators, it is a pleasure to talk to you.

Because of the truncated time allowed me, I commence with the following highlights: that Federal Internal Revenue Code Section 936 is a scandalous waste of Federal funds, which the United States can and should terminate soon, even now, under the present so-called commonwealth status; that any person concerned with revenue neutrality or equality among the political status formulas in the coming plebiscite must logically at least require the so-called Commonwealth to pay the $500 million every year, which the socalled Commonwealth repeatedly promised to pay annually by 1985, to the Federal Treasury in lieu of Federal taxation upon Puerto Rico; three, that statehood is the only status formula that (a) categorically accepts both the rights and responsibilities of United States citizenship, and (b) that can relieve the taxpayers and voters of each one of the states that you represent from the heavy and ever-increasing burden of the so-called Commonwealth of Puerto Rico. If you aid or tolerate that so-called Commonwealth in any way, you in effect crucify the taxpayers of your states, your constituents, on the cross that Commonwealth and particularly with the nails of 936.

I now point out some of my ideas to handle Section 936 or make adjustments after statehood, even for those who still have some desire to maintain that Federal tax expenditure:

One, you can terminate Section 936 now and substitute it with a direct Federal employment program for Puerto Rico, funded with amounts below what previously escaped the Federal Treasury because of I.R.C. Section 936. That is clearly revenue-neutral and, in fact, is a plus for the Federal treasury.

Two, you can cap or segmentize Section 936 and thereby stop or reduce its hemorrhage of Federal funds, for example (a) by prohibiting the use of the tax-sparing credit of Section 936 after a certain cut-off date; (b) by phasing out Section 936, as you phased out Western Hemisphere Trade Corporations and China Trade Act Corporations; (c) by excluding pharmaceutical mixing operations and electrical machinery assemblage from the definition of corporations that can use the tax-sparing credit of Section 936.

Three, you can eliminate 936 and substitute it with a national program of enterprise zones for all states, all states, whose statewide rate of unemployment is, for example, 14 percent or higher, which program would remain in place for the state until it lowered said unemployment to, say, 9 percent, and maintained that lowered rate for a consecutive period of, say, five years.

Four, you can arguably prolong Section 936 intact for a short period of time after statehood for Puerto Rico.

The above segmentization or cap approach takes into account, for example, that although pharmaceutical Section 936 corporations obtain 46.3 percent of the total Federal cost of Section 936, such

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pharmaceuticals provide only 14.8 percent of the employment in Puerto Rico's manufacturing sector.

In 1987, according to the Puerto Rico Planning Board, the chemicals and related products sector, basically pharmaceuticals, had $3,757,600 of the $8,661,300 total net income of all the manufacturing sector in Puerto Rico. But chemicals and related products only had 18,000 employees of the total 148,900 employed in manufacturing in Puerto Rico.

The shocking fact is that the top 16 possession corporations accounted for 24.2 percent of the tax benefits, but provided only 3.6 percent of the employment of the 378 Section 936 corporations in the sixth annual report of the U.S. Treasury Department on Section 936. A report, by the way, dated March 1989, and that refutes totally-in fact, practically totally, almost everything that Mr. Colorado said for you today. And it is galling for me, honestly, that such falsehoods should be presented to you, especially on the question of multipliers that are categorically analyzed here and totally dismissed.

Sixteen Section 936 corporations obtained $100,000 or more of the Federal tax expenditures of 935 for each person they employed. In other words, the Federal treasury spent more than $100,000 per employee. It would have been cheaper just to give the $100,000 to the employee, and better.

The most effective choice for the Congress is the substitution of the present open-ended, unlimited Federal tax expenditures of Section 936 with a direct Federal unemployment program for Puerto Rico. Thereby you totally avoid the constitutional problem of geographical uniformity.

I recognize that the constitutional analysis of former Puerto Rico Secretary of the Treasury and of Justice, Wallace Gonzalez Oliver, is ably presented, is confirmed by Professor Arthur Sutherland of the Harvard Law School, and by Professor Alexander Bickel of the Yale Law School, and more recently by Professor Gewirtz, also of the Yale Law School.

I recognize that even after statehood, 936 could perhaps persist for a short period of time, and accordingly that Professor Tribe's constitutional analysis is too rigid and seemingly too politically partisan, especially when it is co-authored by the Governor's own lawyer, Covington & Burling.

However, there is no geographical uniformity condition on the Federal constitution's expenditure clause; expenditures are expansively for the general welfare. And through the direct expenditure route, I emphasize, you achieve effectiveness and control for your present Federal tax expenditures. You and I should wholly agree with Professor Stanley Surrey of the Harvard Law School: A tax incentive does involve the expenditure of government funds. A dollar is a dollar both for the person who receives it and the government that pays it, whether the dollar comes with a tax credit label or a direct expenditure label.

Many incentives look, and are, highly irrational when phrased as direct expenditure programs structured the same way. A resort to tax incentives greatly decreases the ability of the government to maintain control over the management of its priorities.

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