The Virgin Islands and Puerto Rico would like to know where their rum subsidy has gone

posted at 7:01 pm on June 9, 2014 by Erika Johnsen

Why is this a thing? Via Politico:

Virgin Islands Gov. John P. deJongh, Jr. in recent remarks said he is held up in finishing the territory’s budget — in large part because of revenue loss from a missing rum subsidy.

“We’re still dealing with a fiscal year shortfall that we project at about $40 million,” he said. “We’re going to have to make some very drastic decisions about how we’re going to bridge that gap.”

The U.S. has already sent the territory an advance of more than $60 million with the expectation that Congress will eventually reach a deal, as it often does at the eleventh hour with these breaks. If Congress doesn’t act, the Virgin Islands will have to repay the funds.

How did a rum subsidy intended to fund development in the Virgin Islands, which also helps Puerto Rico, get tied to a batch of expired tax breaks?

An excellent question, but an even better one might be why the United States is perpetuating a terrible and convoluted subsidy system that helps a few niche interests thwart the otherwise healthy competition of the wider Caribbean rum market to the detriment of consumers.

Like with all other imported distilled spirits, the U.S. federal government imposes an excise tax on rum of $13.50/gallon — but no matter the country from which the rum was imported, most of the net revenue generated by rum gets directly kicked back to the U.S. Virgin Islands and Puerto Rico. That money was once supposed to go toward “economic development” with a limit on how much the two territories could use to then directly subsidize their own domestic rum producers, but in practice, the pair of them can export rum to the United States at a much less expensive rate than their competitors in Nicaragua, Guatemala, and other producers in the Caribbean.

It is true that rum companies benefit. The Virgin Islands pays global rum giants Cruzan and Diageo, maker of Captain Morgan, about half of the rum add-on funds they receive. …

The Senate Finance Committee has already approved a 2-year extension of the expanded payment as a part of a broader bill to extend the bevy of expired breaks known as tax extenders. The rum program is one of the least-expensive provisions among the group, with a price tag of just $336 million over ten years, according to the Joint Committee on Taxation.

Still, criticism of the rum rebate continues. It heated up in 2008 when the Virgin Islands struck a deal with Diageo to leave Puerto Rico and open a new Captain Morgan distillery in the territory. The deal included $250 million in matching bonds to help fund the construction.

And because of the amount of kickbacked cash afforded to the Virgin Islands after that deal increased their market share so expansively, the U.S. effectively tipped the international rum market significantly in their favor and deprived other countries of the financial footing to compete.

Again, the biggest question here is why even have this complicated, opaque system of delivering money to special niche interests when we could just de-complicate everything and stop dishing out corporate welfare by lowering taxes for everyone.


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Kim Guilfoyle hosting On the Record in a really, really nice blouse.

Oink, oink.

Jaibones on June 9, 2014 at 7:05 PM

Come on, it’s worth it. I’ll have a double.

LeftCoastRight on June 9, 2014 at 7:06 PM

“Why is the rum (subsidy) gone?!”

BigGator5 on June 9, 2014 at 7:08 PM

When I lived on St Thomas 20 years ago, the 2 cheapest thing in the grocery store were rum and cigarettes.
Convoluted schemes like this are the best when the idea is to pocket money and not have it go where intended.

Flange on June 9, 2014 at 7:10 PM

The Virgin Islands and Puerto Rico would like to know where their rum subsidy has gone

Upon hearing that Obama had given 5 Taliban Four Star Generals 6 million dollar and sent them back to the battlefield, Hillary Clinton drank those subsidies in one single sitting.

oscarwilde on June 9, 2014 at 7:10 PM

the biggest question here is why even have this complicated, opaque system of delivering money to special niche interests when we could just de-complicate everything and stop dishing out corporate welfare by lowering taxes for everyone.

And here’s the answer: politicians won’t end the subsidies and allow the market to operate as it should, because then there wouldn’t be enough opportunities for graft.

Politicians need to pay for their campaigns, their resort homes, their fancy cars, their kids’ Ivy League educations, the fancy jewelry for the young aides they’re banging, etc. And big rum distillers like to crush their competition. Who gives a damn about the interests of consumers or taxpayers or voters (unless it’s election season)? Not these corrupt bastards.

AZCoyote on June 9, 2014 at 7:13 PM

Come on, it’s worth it. I’ll have a double.

LeftCoastRight on June 9, 2014 at 7:06 PM

I can’t tell if you’re On-Topic, or making a Kimberly joke.

Jaibones on June 9, 2014 at 7:13 PM

When I lived on St Thomas 20 years ago, the 2 cheapest thing in the grocery store were rum and cigarettes.

Flange on June 9, 2014 at 7:10 PM

I finished a double batch of Grog this weekend. Damn it was good.

Jaibones on June 9, 2014 at 7:15 PM

Don’t drink much rum these days (too sweet) but a lovingly-prepared Mai Tai is a thing of beauty.

Never liked Captain Morgan, though. And the Bacardi rums are too mainstream. Too “generic”.

I tried a relatively new rum last year, though, and it was pretty good. It’s from the only distillery on the Hawaiian island of Kaua’i:

Koloa Rum

Del Dolemonte on June 9, 2014 at 7:20 PM

I finished a double batch of Grog this weekend. Damn it was good.

Jaibones on June 9, 2014 at 7:15 PM

Feeling a little groggy today?

Flange on June 9, 2014 at 7:20 PM

Feeling a little groggy today?

Flange on June 9, 2014 at 7:20 PM

Aye. Great use of rum and fruit juice.

Jaibones on June 9, 2014 at 7:22 PM

Was in Puerto Rico recently. Was surprised that they treated Myers Rum (Jamaica)as a super premium. They finished pina coladas and rum punches with a float of Myers on the top.

AcidReflux on June 9, 2014 at 7:41 PM

And here’s the answer: politicians won’t end the subsidies and allow the market to operate as it should, because then there wouldn’t be enough opportunities for graft.

Politicians need to pay for their campaigns, their resort homes, their fancy cars, their kids’ Ivy League educations, the fancy jewelry for the young aides they’re banging, etc. And big rum distillers like to crush their competition. Who gives a damn about the interests of consumers or taxpayers or voters (unless it’s election season)? Not these corrupt bastards.

AZCoyote on June 9, 2014 at 7:13 PM

Aye, +1. Make it a double.

Rum, solar power plants, cowboy poetry…means jobs saved or created, so take that u wingerz/

Dolce Far Niente on June 9, 2014 at 7:46 PM

RUM SUBSIDY ???? !!!! Good grief.

lel2007 on June 9, 2014 at 8:34 PM

I don’t care. We have a whole raft of new illegal scumbag cockroaches to take care of with funds that could be helping AMERICANS.

Don’t whine to me about your liver killing booze, and please, go wash your underwear.

Diluculo on June 9, 2014 at 8:58 PM

Because, shyt, they can do better with the cossacks.

WryTrvllr on June 9, 2014 at 9:09 PM

Unlike Malbec.

WryTrvllr on June 9, 2014 at 9:10 PM

I wash my underwear on Sundays.

Tard on June 9, 2014 at 9:29 PM

Both sides?

WryTrvllr on June 9, 2014 at 9:41 PM

Your plan has no vigorish.

Viator on June 9, 2014 at 10:00 PM

Government Rum

This does lend some insight into why our elected officials tend to spend our money like drunken sailors.

s1im on June 9, 2014 at 11:11 PM

they can take their swill and clean pots with it
bayourum.com

hurricane567 on June 10, 2014 at 4:59 AM

Well, the government of PR is adding a 7% import/export tax in August, effectively cancelling out the subsidy for your Bacardi.

At least they have those nifty windmills across the bay from Old San Juan and a nice visitor center and stuff.

JoseQuinones on June 10, 2014 at 9:01 AM

Yes, there should be NO subsidies unless the industry is directly related to being able to ramp up for wartime production of warfighting material. Period. And even that subsidy I am leery of.

GWB on June 10, 2014 at 10:03 AM

Not the Rum! – Capt. Jack Sparrow

Missilengr on June 10, 2014 at 11:51 AM