- The Washington Times - Tuesday, December 22, 2009

More than 90 years ago, Congress had the vision to establish the federal rum tax cover-over program to foster economic development in its territories (“Captain Morgan’s rum war,” Editorial, Wednesday). Today, it’s a tremendously important revenue source for both U.S. territories, Puerto Rico and the Virgin Islands.

In Puerto Rico, we use at least 90 percent of the rum tax cover-over revenue to support much-needed investments in infrastructure, health, education, economic development and environmental preservation; by local law, we limit to no more than 10 percent the amount that can be used to support the island’s rum industry.

In fact, right now we allot only six percent of the rum tax cover-over revenue to support marketing, efficiency and innovation initiatives of the entire local rum industry, not individual rum-producing companies. That strict, self-imposed limit, mandated by local law, keeps Puerto Rico true to the original intent of Congress in establishing the program decades ago.

The decision by our brethren in the Virgin Islands - to give more than 50 percent of its future annual rum tax cover-over revenue to a single, foreign-capital-owned, rum-producing company to move its operations from Puerto Rico to the U.S. Virgin Islands - steers the program in the wrong direction. This company will receive more than $60 million per year in subsidies - or $6 per proof gallon of its projected rum production for the next 30 years. That makes the subsidy twice as much as the cost of production. Additionally, the U.S. Virgin Islands is structuring yet another deal with a rum-producing company operating in the U.S. Virgin Islands granting similar subsidies.

That is neither piracy nor privateering but plain old un-American unfair competition - the kind of outright corporate welfare that puts the whole program in jeopardy. Congress should take a look at this issue precisely because it is not merely a commercial dispute but rather a gross misuse of U.S. taxpayers’ money.

The potential loss of the Captain Morgan production would badly hurt Puerto Rico’s 1,000-jobs-strong rum industry. Yet we have not considered until this date, pledging a higher amount of U.S. taxpayers’ dollars to one company hoping to retain its operation in Puerto Rico - even though in a bidding war we would have the upper hand, given Puerto Rico’s substantially larger rum tax cover-over share - precisely because we are convinced the approach followed by our brethren in the U.S. Virgin Islands puts the program at risk in the eyes of Congress. If that happens, all that will have been accomplished is ensuring that those jobs eventually move to a non-U.S. jurisdiction and the territories losing much-needed funds for economic development purposes.

That’s why Pedro R. Pierluisi, Puerto Rico Democrat, has introduced legislation that would limit the amount of subsidy that any territory may give to the industry to 10 percent, just as Puerto Rico does now. The bill deserves a hearing.

The federal rum tax cover-over program is very important to both Puerto Rico and the Virgin Islands, but its abuse as corporate welfare by the latter puts it in jeopardy, to the potential detriment of both U.S. territories.


Executive Director

Puerto Rico Industrial Development Company

Hato Rey, Puerto Rico

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