Congressman Paul Ryan and the House Republicans are stressing the point to the Obama administration that government spending must be cut. One of countless programs that can be cut is a wasteful corporate welfare program that will cost U.S. taxpayers close to $20 billion over the next ten years.
Under the rum cover-over program, the federal government imposes a $13.50 excise tax on each gallon of rum produced in a U.S. territory and sold in the U.S. The federal government returns more than 98% of the revenue it collects from this excise tax to rum-producing territories (like the U.S. Virgin Islands) as economic aid and there are virtually no strings attached to how that money is spent. Recently, this program has become an even more outrageous corporate welfare scheme designed to line the pockets of foreign companies at the expense of U.S. taxpayers.
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Earlier this year, the Obama administration confirmed a new loophole in the program that not only increases the programs cost from $700 million a year to nearly $2 billion a year but also puts in jeopardy the jobs and competitiveness of corn growers and distilleries throughout the Midwest.
In 2008, the U.S. Virgin Islands [USVI] entered a 30-year agreement (renewable for up to 60 years) with the British alcohol firm Diageo. In return for relocating its rum production facility to the USVI island of St. Croix, Diageo will receive almost half of the Virgin Islands rum tax money, a 90% income tax break, and a property tax exemption. The government will also build Diageo a new state-of-the-art distillery and guarantee subsidize sugar prices (sugar is a key ingredient in rum) for the next 60 years. The deal could be worth well over $6 billion to Diageo.
And its getting worse. According to domestic alcohol industry insiders, the USVI is now trying to convince domestic manufacturers to relocate their operations to the territory and purchase USVI bulk rum to blend into domestic alcohol products. This could destroy thousands of jobs throughout the Midwestern states as distillers move their operations to the Caribbean to take advantage of the tax breaks and subsidies. It could also cost corn producers 22 million bushels worth of demand, since corn is a major ingredient in domestic alcohol production.