Vol. 64 • Núm 2 • abril - junio 2003 CONSTITUTIONAL SEPARATION AND THE FORAKER ACT: HOW THEY INFLUENCED PUERTO RICO’S TAX REFORM FROM 1898-1901 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 1898-1901 and led to the adoption of the import excise and property tax1 Paul Salamone2 “History is the witness that testifies to the passing of time; it illumines real- ity, 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 1898-1901 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 1898-1901. The individuals caught in this drama were many, but the influence exerted by President McKinley, Elihu Root, Secre- tary 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. 341. 4 Barlett’s Familiar Quotations, 720 (15th 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 sepa- rated from the country that governed it locally and exercised sovereignty interna- tionally as well. Puerto Rico tax reform also became entwined with this experi- ment, 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 1900. This caution, mainly directed at the newly acquired, densely populated but rebellious Philippines, de- railed 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. 360-362. 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 1900-1955, 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 policy- makers 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 ap- plied 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 com- mentary 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 prop- erty tax molded principally from Maryland law. These two modes of taxation have expanded and are very much in use today. I. 1898-1900 - 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 War8, Spain “cede[d]”9 Puerto Rico to the US10 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, 11th Ed; Gunther, Gerald, Constitutional Law, Foundation Press, 12 ed (1991), Shapiro, Martin, American Constitutional Law, McMillan, 4th Ed, (1975),Nowak, John E., Rotunda, Ronald D, Constitutional Law, West Group, 6th 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. 387-404. 9 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 133-134. For a contrary view see, Estades Font, María E., La presencia militar de Estados Unidos en Puerto Rico, 1898-1918, Ediciones Huracán, Río Piedras, Puerto Rico, (1988), pgs.