It may not be Talk Like a Pirate Day, but this story is guaranteed to make you say, “Aaaaargh!” The Obama administration will pay a British distiller almost $3,000,000,000 (billion) in subsidies in order to move its operation from Puerto Rico to St. Croix in the Virgin Islands. The makers of Captain Morgan’s Spiced Rum, Diageo PLC, won’t be complaining about their booty, but the people on Puerto Rico feel pillaged — and so should American taxpayers:
Under the agreement, London-based Diageo PLC 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 the island of 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 another U.S. territory, Puerto Rico, and critics say the Virgin Islands’ subsidy for the new distillery there, along with the other benefits, are so generous that they practically guarantees a profit on every gallon of rum produced there by Diageo, the biggest distilled spirits maker in the world.
“The U.S. taxpayer is basically being asked to line the pockets of the world’s largest liquor producer,” says Steve Ellis, the president of Taxpayers for Common Sense, a nonpartisan watchdog organization.
Captain Morgan’s Spiced Rum had over 21% of the market in 2004, the latest records I could find. That put them in second place behind BacardiUSA, which had 41.7% of the market in the US. Why would the US want to subsidize a foreign competitor to an American company in any way, shape, or form?
And the subsidy for the move to St. Croix is really baffling for an administration that supposedly values community involvement. Puerto Rico will lose 300 jobs in this move, but that’s not the only problem it causes. As the Chicago Tribune points out, Puerto Rico uses 90% of its tax revenues from rum on public welfare. The loss of revenue will cut those funds just in time to have even more people unemployed.
According to the Tribune, rum sales account for $470 million each year in revenue to the federal government. With Diageo’s market share, they produce about $103 million in tax receipts. At that rate, it will take 27 years for the government to hit the break-even mark, and that doesn’t account for the cost of money — in interest, inflation, and lost opportunities elsewhere.
On top of all this, do we have $3 billion to throw away on rum subsidies? It’s a ridiculous amount of money to build up a foreign producer and allow them to go even further offshore from the US.
Update: The Tribune article mentions John Merrigan as the “Washington lawyer who helped Diageo negotiate the Virgin Islands agreement,” but what else is Merrigan? As reader Geoff A discovers, Merrigan is also a member of the DNC:
- American Bar Association
- Chair, Democratic Business Council, Democratic National Committee
- Member, The George Washington University’s National Council for Political Management
- Board of Directors, New Democrat Network
The NDN is a counterpart to the DLC, the centrist group within the Democratic Party that helped Bill Clinton win the presidency. The NDN pushes the progressive policy line, which apparently now includes billions in corporate subsidies for foreign firms. The DNC connection certainly seems … inappropriate.