Rum industry benefitting from $2.1 billion in taxpayer subsidies

Rum distillers, one in particular, Diageo (producers of Captain Morgan) and Bacardi. and their allies try to hide the fact that they are receiving direct taxpayer subsidies from the way the rum excise tax cover over has been implemented. But the Diageo/USVI agreement makes clear that U.S. taxpayers are about to become unwitting silent investors in a $250 million rum distillery in St. Croix and that $2.1 billion of tax revenues will be benefitting Diageo’s bottom line for the next 30-years. Looks like there will be a little bit of all of us ($2.1 billion tax dollars) in the Captain.

A Taxpayers for Common Sense (TCS) analysis has found that both of these liquor conglomerates benefit from a program renewed in the bailout bill. This program, known as a “cover over,” rebates excise taxes charged on rum imported from Puerto Rico or the the U.S. Virgin Islands back to the territorial governments. The governments in turn provide as much as 35% of the rebated revenue back to the distillers to help market rum in the U.S. – to teach Americans to “do the mojito“and find out if they “have a little Captain” in them.

The London based alcohol conglomerate Diageo is poised to benefit greatly from the tax rebate. Currently, Captain Morgan rum is distilled in Puerto Rico at the Destileria Serralles. But, Diageo struck a deal earlier this year with the U.S. Virgin Islands (USVI) government to get close to half of the USVI share of the rum excise tax cover over to finance a very lucrative package of incentives, including bonds and marketing support, for Captain Morgan. This convinced Diageo to shift rum production from Puerto Rico to USVI.

The bailout bill makes the cover over more lucrative for Diageo and USVI (Section 308 of the bill). If the rum provision is maintained through the 30-year life of the agreement, Diageo would receive nearly half of the $5.4 billion in excise tax benefits that USVI would receive, according to a TCS analysis of USVI and Diageo data. While the recent extension is backdated to January 1, 2008 and will expire December 31, 2009, it is expected that the provision will continue to be rubber stamped. Since its increase, the provision has been renewed five times. Read the full story.

Bookmark and Share