Reported by Hispanic Link
Puerto Rico and the U.S. Virgin Islands are locked in a dispute over rum production that would have a significant impact on the economic futures of both U.S. territories. It threatens to seep into elections in the mainland United States.
At the heart of the dispute is the use of rum excise tax refunds given to the territories. Currently, a $13.50 excise tax is collected one very proof gallon of rum produced outside the U.S. mainland and sold in the United States.
ECONOMIC AID IS BENEFIT
According to public-interest journalism website ProPublica.org, most of the rum is made in Puerto Rico and the Virgin Islands, and Congress passes along almost all of the tax — $13.25 — to the two territories as economic aid, based on the amount of rum each produces.
That generally translates into about $400 million for Puerto Rico and $80 million for the Virgin Islands. One of the world’s largest rum producers, London-based company Diageo, owner of the Captain Morgan brand, currently produces 9 million proof gallons a year in Puerto Rico through an evengreen agreement with Hispanic supplier Distilería Seralles, generating significant subsidies for the country.
However, in 2008 Diageo struck a deal with the U.S. Virgin Islands that would give the company half of the rum-tax money that is returned to the territory for production of Diageo’s rum, which would run to $6 billion over the length of the 30-year deal. In addition, according to ProPublica, the Virgin Islands also will give Diageo a 90 percent income- tax break, a complete exemption from property taxes and a state-of-the-art $165 million rum distillery, which is now under construction.
Puerto Rico is claiming the deal represents an unfair use of the rum-tax subsidy and Diageo is receiving more than it costs in total to produce the rum. Losing the rum production would deprive Puerto Rico of funds for social programs in a country where unemployment stands 16.5 percent and one in three residents lives in poverty. The Virgin Islands claim that Diageo had already decided to leave Puerto Rico and their deal with the company preserves U.S. rum production.
Puerto Rico is unable to match the deal offered by the Virgin Islands due to a local law that prohibits the country from spending more than 10% of the rum-tax refunds on subsidies to companies. Puerto Rico supporters are now pushing for a federal law mandating a cap for all territories receiving rum-tax subsidies, setting off a lobbying war in Washington, D.C.
The issue is also beginning to spill into midterm election campaigns. On Feb. 11, former Miami mayor Maurice Ferré, who is now running in Florida’s Democratic primary for U.S. Senate, came out against the Virgin Island deal.
SIGNIFICANT JOB LOSS
This prompted the National Puerto Rican Coalition to call on Florida’s other Senate candidates, Republicans Gov. Charlie Crist and former Speaker of the Florida House Marco Rubio, as well as Democratic U.S. Rep. Kendrick Meek, to denounce the deal.
This is going to cause profound pain in Puerto Rico, which counts on these revenues to meet pressing social needs,” NPRC President Rafael Fantauzzi said in a statement: Will Crist, Meek and Rubio join Ferré in standing up for the people of Puerto Rico, or will they tell us how they will accommodate the thousands of Puerto Ricans who will have no choice but to relocate to the United States as a result of the continuing economic crisis on the island?” Hispanic Link.
