Fair. Balanced. American.

Tuesday, October 06, 2009

Rangel's Puerto Rican rum scam

There are any number of policy arguments to be made. Why, an enterprising Republican legislator might want to ask, should Americans have to pay taxes on rum produced by U.S. possessions in the first place? But then, our mythical legislator would have to choose between a corporation and U.S. taxpayers. And if the present health care debacle has taught us anything, it's that Republicans will choose foreign-owned health care conglomerates over American citizens every time.

Here's the back story:

Yo-ho-ho and a bottle of rum. With little fanfare, a deal is moving forward to direct billions in U.S. tax dollars to an unlikely beneficiary: the giant British liquor producer that makes Captain Morgan rum.

Under the agreement, Diageo PLC in London will receive tax credits and other benefits worth $2.7 billion over 30 years, including the entire $165 million cost of building a state-of-the-art distillery on St. Croix in the Virgin Islands, a U.S. territory.

Virgin Islands officials say the arrangement complies with the letter and spirit of tax law and will help the islands' sagging economy.

Captain Morgan is now produced in the U.S. commonwealth of Puerto Rico, and critics say the Virgin Islands' subsidy for the new distillery is so generous it practically guarantees a profit on every gallon of rum produced there by Diageo.

"The U.S. taxpayer is basically being asked to line the pockets of the world's largest liquor producer," says Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan organization.

With the exception of Ellis and a handful of lawmakers, however, the deal has attracted little opposition. Treasury Secretary Timothy Geithner has said he does not have authority to block or investigate the project. Criticism on Capitol Hill has been confined to a small group that includes Republican Congressmen Dan Burton of Indiana and Darrel Issa of California.

The key to the deal is a tax collected on every bottle of rum sold in the United States - some $470 million a year. The tax was first imposed in 1917, and most of the money is funneled back to the governments of rum-producing U.S. islands in the Caribbean to help create jobs, pay for local government services, and promote consumption of rum.

Puerto Rico, which requires that 90 percent of its rum tax money be used for the public welfare on the island, says it has had as many as 300 workers making Captain Morgan and many if not all of those jobs will disappear if Diageo moves its operations to the Virgin Islands.

There's more:

What all this means is that the federal government imposes an excise tax on distilled spirits, including rum, at $13.50 per proof gallon. For some time, the federal government has rebated to the governments of Puerto Rico and the Virgin Islands (but not other spirits-producing states) a share of the federal excise tax collected on rum imported from those two jurisdictions. (It is essentially an accounting shift to pay for the cost of government there, a benefit not extended to any state.) The amount of the rebate occasionally changes and is renewed every two years. This year, the renewal was stuck into the bailout bill.

Charlie Rangel, meanwhile, is on the take from both sides. And why wouldn't he? Who, after all, pays attention to the economic affairs of these heavily subsidized U.S. colonies?