Here is a dispassionate and accurate summary of the great Cap’n Morgan hijack. Rumpundit has consistently suggested other Caribbean islands should get dibs on this cash, and in these times of stress, it’s worth pointing out that $13-50 a gallon excise duty on spirits is minimal compared with other countries’ duties – almost as much a joke as Federal cigarette taxes. Budget balancers are amazingly quiet about them… which is usually equivalent to a big sign saying “Beware, lobbies at work!”
Dec 30th 2009 | PONCE, PUERTO RICO
From The Economist print edition
A dispute over Caribbean distillation has tempers flaring in Washington, DC
SHREWD dealmaking or modern Caribbean piracy? That is the question surrounding a contract between Diageo, the world’s largest drinks company, and the government of the United States Virgin Islands (USVI). The deal, signed in June 2008, provides Diageo with nearly $3 billion in tax breaks over the next 30 years—including marketing subsidies, a 90% reduction in corporate-income taxes, exemption from property taxes and a new distillery and warehouses to be paid for by government bonds, all to produce Captain Morgan, a swiftly growing brand of spiced rum currently made by the Serralles distillery in Ponce, Puerto Rico.
The money for this exceptionally generous deal comes from excise-tax rebates. The federal government in Washington, DC, returns $13.25 of every $13.50 it collects per proof-gallon of rum to Puerto Rico and the USVI. Puerto Rico uses most of those funds for infrastructure, land conservation and to boost its general fund; it returns no more than 10% of its rebate to its rum industry. The USVI is proposing to return nearly half of its rebate to Diageo alone. Puerto Rico is now crying foul, pitting two American insular possessions against each other.
Donna Christensen and Pedro Pierluisi, the (non-voting) congressional representatives from the USVI and Puerto Rico respectively, introduced warring bills on Capitol Hill last year. Ms Christensen’s bill would make permanent the territories’ remittance from the federal rum tax—as things stand, Congress must vote every two years to keep it at $13.25 a gallon, otherwise it falls to $10.50. Mr Pierluisi’s bill would cap the proportion of funds that can be returned to rum producers at 10%.
Members of the congressional black caucus are backing the USVI and representatives of Puerto Rican descent have taken Puerto Rico’s side. In December Diageo engaged a prominent firm of lobbyists and John deJongh, the governor of the USVI, made the rounds in Washington, DC, to explain his position.
Mr deJongh says Puerto Rico’s bill would “set a dangerous precedent for federal involvement in matters between local and state governments and companies”. He and Diageo also point out that the company was considering moving production out of the United States altogether; this keeps it in the country, though at the cost of many jobs at Serralles in Puerto Rico, 85% of whose rum is used for Captain Morgan. But Puerto Rico has another worry: if the rebates are simply seen as corporate subsidies, they could now prove a tempting target for a cash-strapped federal government.