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Vol. 64 Núm 2 abril - junio 2003 CONSTITUTIONAL SEPARATION AND THE FORAKER ACT: HOW THEY INFLUENCED PUERTO RICO S TAX REFORM FROM AND LED TO THE ADOPTION OF THE IMPORT EXCISE AND PROPERTY TAX i 34 CONSTITUTIONAL SEPARATION AND THE FORAKER ACT... Constitutional Separation and the Foraker Act: how they influenced Puerto Rico s tax reform from and led to the adoption of the import excise and property tax 1 Paul Salamone 2 History is the witness that testifies to the passing of time; it illumines reality, vitalizes memory [and] provides guidance in daily life... Cicero - Pro Publio Sestio. Introduction Thomas Carlyle once observed that history is the essence of innumerable biographies 3. While H.G Wells remarked that human history is in essence a history of ideas. 4 Puerto Rico s constitutional future was certainly influenced by both men and ideas and historical circumstances. The period of was marked by the Spanish-American War, the deadly Hurricane San Ciriaco of 1899 and electoral and protectionist concerns in Congress. They undoubtedly provide depth, color and a setting to this momentous turning point in Puerto Rico s history. Puerto Rico s current fiscal structure and constitutional underpinnings hark back to the Spanish American War of 1898 and the historical developments that occurred during the period from The individuals caught in this drama were many, but the influence exerted by President McKinley, Elihu Root, Secretary of War, J.H. Hollander, Puerto Rico s first Treasurer under the Foraker Act, Governor Charles H. Allen, first civil governor under the Foraker Act, Governor W. Davis, the Island s last military governor, Senator Foraker and Congressman Payne was disproportionate. Their unorthodox ideas on what the constitutional underpinnings for Puerto Rico and its tax system should be have had a lasting impact. Thus, it is of immense value to examine the historical context in which all of these developments took place. For Puerto Rico, the principal result of the Span- 1 This article is dedicated to the late David Rivé Rivera, Esq., a gentleman and scholar of the law, family man and good friend, to whom I am eternally indebted for my passion for the Law and for history. 2 B.S.E.E., University of Puerto Rico; J. D., University of Puerto Rico; L.L.M. in Taxation, Boston University. 3 Book of Quotations, Harper Collins, (2000), pg Barlett s Familiar Quotations, 720 (15 th ed. 1980). REVISTA DEL COLEGIO DE ABOGADOS DE PUERTO RICO 35 ish-american War of 1898 was the Foraker Act of 1900, 5 Congress first attempt at framing a territorial relationship for its new colony. Congress used tariffs enacted as part of the Foraker Act, as its leading edge to test the assumption held by the McKinley Administration, that Puerto Rico remained constitutionally separated from the country that governed it locally and exercised sovereignty internationally as well. Puerto Rico tax reform also became entwined with this experiment, when Congress directed in the Foraker Act that such reform must take place, in order for the tariff barriers that were visibly established to support the constitutional principle of separation to expire. The compromises evident in the Foraker Act of This caution, mainly directed at the newly acquired, densely populated but rebellious Philippines, derailed the first attempt at extending citizenship to Puerto Rico residents, but what emerged was a fiscal structure that in a modified form lives on. The Supreme Court s views on the issues that most concerned Congress when the Foraker Act was debated and collected in the so-called Insular cases, 7 reflect 5 31 Stat. 77, ch. 191 (1900). 6 The McKinley Administration was certainly not the first preoccupied by territorial expansion. The Louisiana Purchase under President Jefferson, the Mexican-American War, the purchase of Alaska from Russia (also known as Secretary Seward s folly ), the push to the West and south to Florida were key events in forging the United States. Less known to students of history were the failed efforts at expansion. For example, until 1870, diplomatic exchanges with Great Britain explored the possibility of the annexation of Canada. In December of 1822, the government of El Salvador, armed with a decree from its Congress, sent three commissioners to Washington to offer the sovereignty of the country, but the proposal was abandoned before the Commissioners arrived in the United States. In 1848, Mexico offered the Yucatán peninsula, but the opportunity was passed. Also in 1848, Spain refused the US s offer to purchase Cuba for $100 million. In 1868, the President of the Dominican Republic invited the U.S. to place the country under its protection and occupy Samaná Bay as a preliminary step toward annexation. Subsequent negotiations led to a treaty of annexation that was submitted by President Grant to the Senate for ratification but was not adopted. Bassett Moore, John, Principles of American Diplomacy, Harper & Brothers, NY, (1918), pgs The Senate also rejected a treaty put forth by the Grant Administration to acquire from Denmark what is now the US Virgin Islands. Bemis, S.F. The United States as a World Power: A Diplomatic History , Henry Holt & Co., rev. Ed., N. Y. (1955), pg. 51. The failure to pass the Dominican treaty of annexation and the purchase of the Virgin Islands must have cast shadow over the policymakers of the McKinley Administration. 7 De Lima v Bidwell, 182 US 1 (1901); Dooley v United States, 182 US 222 (1901), Armstrong v United States, 182 US 243 (1901); Downes v Bidwell, 182 US 244 (1901). Frederic Coudert, counsel in one of the Insular Cases, remarked that: [i]t is difficult to realize how fervent a controversy [this was] over the question of whether the Constitution follows the flag. This question, arising as the result of our acquisitions of territory following the Spanish War, divided courts, judges and lawyers, but public opinion generally. It led to a flood of controversial literature, to phrase-making in and out of Congress, and to bitterness which almost threatened to resemble the controversies over the Fugitive Slave Law [Dred Scott case] and the Missouri Compromise. Coudert, F., The Evolution of the Doctrine of Territorial Incorporation, 26 Colum. L. Rev. 823, 823 (1926). Now, it is a sad statement that all but forgotten is the fact that the Insular Cases were great cases at the time Schwartz, Bernard, A History of the Supreme Court, Oxford University Press, 1993, pg. 186, not only at the time but their influence is very much alive 36 CONSTITUTIONAL SEPARATION AND THE FORAKER ACT... a deference bordering on institutional abdication to the judgments made and applied by the political departments of Government. Their impact and relevance today is such that Puerto Rico s constitutional status and its fiscal structure is very much always front-and-center of never-ending controversy, vigorous commentary and political debate. The historical record will also provide a clearer understanding of how Puerto Rico s first civil government in 1900 viewed and construed Puerto Rico s tax powers under the Foraker Act when in turn legislation was passed to enact tax reform to end the tariffs imposed to establish its constitutional status. The end result was that Puerto Rico adopted a modified version of the federal import excise with interdiction and inspection of imports at the water s edge and a property tax molded principally from Maryland law. These two modes of taxation have expanded and are very much in use today. I The Spanish-American War - Spain Cedes Puerto Rico - Puerto Rico Imposes Import Duties under US Military Administration As a result of the short but momentous Spanish-American War 8, Spain cede[d] 9 Puerto Rico to the US 10 as part of the settlements contained in the today. See Harris v Rosario, 446 US 651 (1980). But, see Justice Marshall s dissent in Harris, ante questioning the continued vitality of these cases. Of significance also is the fact that leading textbooks on Constitutional Law unfortunately fail to discuss or even mention in passing the Insular cases. For examples see, Lockhart, William B.; Kamisar, Yale, Chopper, Jesse H., Constitutional Law, West Publishig Company (1970), Cohen, William; Varat, Jonathan, Constitutional Law, Cases & Materials, 11 th Ed; Gunther, Gerald, Constitutional Law, Foundation Press, 12 ed (1991), Shapiro, Martin, American Constitutional Law, McMillan, 4 th Ed, (1975),Nowak, John E., Rotunda, Ronald D, Constitutional Law, West Group, 6 th Ed. 8 On April 25, 1898, Congress declared that a state of war existed between the United States and the Kingdom of Spain (30 Stat. 364, ch. 189 (1898)), then the colonial power over Puerto Rico, Guam, the Philippines and Cuba. In 1897, Spain had granted a fair amount of autonomy to Puerto Rico that included its own parliament. See García Martínez, Alfonso L., La Constitución Autonómica de 1897: Un Desarrollo no Igualado en Nuestra Historia, 35 Rev. Col. Abog., Num. 3, agosto, (1974), pgs Art. II of the Treaty of Paris employed the more gentle term cedes unlike Art. I of the treaty when referring to Cuba: Spain relinquishes all claim of sovereignty over and title to Cuba. 10 Prior to commencement of hostilities, Puerto Rico had not figured prominently as a choice for strategic expansion of American territory during the great race by Western European powers to acquire colonies at the turn of the century. Morales Carrión, Puerto Rico, A Political and Cultural History, W.W. Norton and Company, Inc., (1983) at For a contrary view see, Estades Font, María E., La presencia militar de Estados Unidos en Puerto Rico, , Ediciones Huracán, Río Piedras, Puerto Rico, (1988), pgs This was not to say that the island s importance was lost on military planners during the rising friction between Spain and the U.S. over the Cuban insurrection. Once hostilities commenced, Puerto Rico had become key to American naval and strategic planning in this hemisphere. [Teddy] Roosevelt took a strong position in favor of expulsion of Spain from the hemisphere. As he left the McKinley Administration to join the Rough Riders, he wrote to Senator Cabot Lodge to pursue a hard line stance with Spain: do not make peace until we get Porto Rico while Cuba is made independent and the Philippines at any rate taken from Spain. Morales Carrión at pg Reluctantly, REVISTA DEL COLEGIO DE ABOGADOS DE PUERTO RICO 37 Treaty of Paris. 11 Prior to the conclusion of hostilities, and upon landing in Puerto Rico 12, Major General Miles took control of civil administrative matters of the increasing portion of the Island that fell under his command. After the Peace Protocol was signed, the Island was left under military administration. 13 Pursuant to General Orders 101 Spanish municipal laws continued to be enforced, 14 inthroughout this article the author will cite the historical record without correcting the erroneous reference to Puerto Rico as Porto Rico. Porto, is the term for port in Portuguese and Italian. By citing it, I do not intend offense to the noble and good People of Puerto Rico. Reflecting the record the way it exists is done only to underscore that, from 1900, with the enactment of the Foraker Act of 1900, 31 Stat. 77, ch. 191 (1900), until 1932, when Congress finally amended the law, 47 Stat. 158 (1932), Congress designated the Island with such a name. The erroneous reference also appeared in reports issued by military governors and, prior to that, in the provisions of the Treaty of Paris. 11 For an excellent discussion of the history of the Spanish-American war and its aftermath in Puerto Rico see, Rosario Natal, Carmelo, Puerto Rico y la Crisis de la Guerra Hispanoamericana ( ), San Juan, Puerto Rico, Ramallo Brothers Printing Co., (1975). Briefly, war was declared on April 25, 1898, US troops landed in Puerto Rico on July 25, 1898 and hostilities with Spain ended on August 12, 1898 with the signing of a peace protocol. The Treaty of Paris was signed on Dec. 10, 1898, was approved by the Senate, signed by the president on February 6, 1899 and became effective upon exchange of ratifications on April 11, Dooley v United States, 182 US 222, 230 (1901). United States-Spain, 30 Stat. 1754, T.S. No Also pursuant to the Treaty of Paris, the US acquired Guam and the Philippines, the latter upon the payment of $20 million. The American commissioners had demanded the cession of these three territories at the Paris peace conference. But Spain hesitated and resisted relinquishing Puerto Rico, populated by its most loyal and steadfast overseas citizens at the time. Rosario Natal, at p. 193 and pgs Spain s view was that the island had not been a visible element that triggered hostilities and as such urged to keep it out of the peace negotiations. This stance failed to persuade and was rebuffed by President McKinley s negotiators despite Spain s offers to trade other territory, even Cuba (which was declined) for Puerto Rico. Rosario Natal, Carmelo, pgs Morales Carrión, A. Puerto Rico, A Political and Cultural History, W. W. Norton & Co. Inc., 1983, at 135. See also references cited in Cabranes, J., Citizenship and the American Empire, Yale University Press, 1979 at p 2, fn On July 25, 1898, in the port town of Guánica, located in the southwestern part of the island of Puerto Rico. 13 The military campaign was short of 19 days and ended with the signing of the peace protocol in August of At the time of the signing of the protocol, General Miles troops controlled nearly half of the island s territory. First Annual Report of Charles H. Allen, Governor of Porto Rico, May 1, 1901, Washington: Government Printing Office (1901), pg General Miles appears to have had no special instructions from the President respecting the government that should be established [in Puerto Rico], but it was well understood that he and those under him were [still] subject to the [standing] instructions communicated by President McKinley to the Secretary of War under date July 13 with reference to Cuba and published by the War Department as General Order 101. Ochoa v Hernández & Morales, 230 US 139, 154 (1913). In pertinent part, the Order reads as follows: Though the powers of the military occupant are absolute and supreme and immediately operate upon the political condition of the inhabitants, the municipal laws of the conquered territory, such as affect private rights of person and property and provide for the punishment of crime, are considered as continuing in force, so far as they are compatible with the new order of things, until they are suspended or superseded by the occupying belligerent and, in practice, they are not usually abrogated, but are allowed to remain in force and to be administered by the ordinary tribunals, substantially as they were before the occupation. This enlightened practice is so far as possible to be adhered to on the present occasion. Cited in Ochoa, ante at page 155. General Orders 101 was observed more in the breach than anything else. General Orders 101 did allow room for the military governors to replace political institutions and others that could clash with the new order, such as doing away with state-sponsored religion. However, this rule of exception 38 CONSTITUTIONAL SEPARATION AND THE FORAKER ACT... cluding collection of the existing colonial tariffs 15 on all imports entering the Island, from both foreign and United States origin alike, 16 unless expressly repealed or modified by military order. Federal law was not extended or enforced, since the Island was considered just occupied foreign territory. 17 All these policies were instituted to ensure the maintenance of public order and the continuity of the revenue for the support and stability of the new military provisional government. 18 became the primary legal source for justifying the wholesale dismantling by decree of longstanding social and legal institutions to make way for what the military governors thought was a preferable system. Some of the efforts were novel and, at times, constituted inspired social thinking, such as the attempt to establish a minimum wage and reform of the penal system. Others were simply short-sighted and lacked sensitivity toward local attitudes and culture. For example, the establishment of divorce in a Catholic community that until then had banned it, the reorganization of the local courts, the reorganization of municipal governance, the abolishment of the Diputacion Provincial, the establishment of a parallel court system that was patterned after a US District Court overlapped and eclipsed the local courts and other decrees. Military tribunals were also constituted and employed under General Order 27, issued by General Brooke on October 4, 1898, to try civilians or tiznaos accused of arson and murder, in order to stem a phenomenon that arose after hostilities ceased and was directed principally as reprisals against Spanish landowners. For an interesting account of this period of reprisals see Picó, Fernando, La Guerra Después de la Guerra, Ediciones Huracán, Río Piedras, Puerto Rico (May 1998). These efforts clearly went beyond tinkering and administering municipal law, as envisioned in General Orders 101, and were at variance with the views of the Secretary of War Root, particularly on the subject of not tampering with the civil law tradition of Puerto Rico. Report of the Secretary of War, 1899, Washington Printing Office, pg. 30. However, the Secretary could have, but did not override any of the controversial orders issued by his military commanders in Puerto Rico. For a comprehensive view of the military administration, see Berbuse, Edward J., The United States in Puerto Rico, , The University of North Carolina Press, See also Trías Monge, José, Historia Constitucional de Puerto Rico, Vol. I, Editorial Universitaria, Rio Piedras, Puerto Rico, (1980), pgs During the first six months of the American occupation of Porto Rico the essential revenues of the island were received and disbursed by an officer of the U.S. Army, acting as collector of customs. On May 8, 1899, by an Executive Order of the President of the U.S., the office of treasurer of Porto Rico was established as an organic part of the military government of the island and the position filled by the appointment of an army officer. Report of the Treasurer of Porto Rico to Governor Charles Allen, included in Annual Report of Governor Charles H. Allen, May 1, 1900-May 1, 1901 at On August 16, 1898, four days after the signing of the peace protocol with Spain, the US lifted the naval blockade of Puerto Rico and opened the port of San Juan for business. Rosario Natal, Carmelo, at pg Opinions of the Attorneys General 560, 562 (1899), V Decisions of the Comptroller of the Treasury, July 1898-June 1899, pgs (Geographer and geologist s work in Puerto Rico not performed within the United States under the Act establishing the Geological Survey.) ( It is quite evident from a reading of the entire treaty [of Paris] that there was no intent to extend by that instrument either the Constitution or its statute laws. ). There were exceptions. Naturally, federal military law was enforced on military personnel serving in Puerto Rico. The second important exception inconsistent with the view of statutory exclusion was public lands and riverbeds. They were deemed transferred by the Crown of Spain to the United States by the treaty of Paris and immediately, therefrom, subject to federal law. 22 Opinions of the Attorneys General 544 & 546 (1899). 18 Upon the occupation of the country by the military forces of the United States, the authority of the Spanish government was superseded, but the necessity of the revenue did not cease. The government must be carried on, and there was no one left to administer its functions but the military forces of the United States. Money is a requisite for that purpose The most natural REVISTA
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