FACT Sheet?
I picked this up here:
Fact Sheet: Protecting the Future of the Rum Cover Over Program
January 21, 2010
Since its creation by Congress over 91 years ago, the rum cover-over program has provided important budgetary support for Puerto Rico, and later for the U.S. Virgin Islands. New plans to use federal tax revenues to excessively subsidize individual rum companies could put the entire program in jeopardy.
History of the Rum Cover Over Program
In 1900, Congress approved the first law for the governing of Puerto Rico, and provided that federal taxes on Puerto Rican products would be used to help pay for the government of the U.S. territory.
The original version of the current law was enacted in 1917. It now “covers over” (transfers) to Puerto Rico’s government most of the federal taxes collected on rum produced on the Island and in foreign counties to help pay for the cost of government.
In 1954, Congress granted the request of the U.S. Virgin Islands for support of its government budget similar to that granted to Puerto Rico.
Current permanent law gives Puerto Rico and the U.S. Virgin Islands $10.50 of the $13.50 per proof gallon tax on rum distilled in each territory and in foreign countries. Temporary law, which requires recurring congressional approval, provides an additional $2.75 per proof gallon.
Puerto Rico’s Use of Federal Rum Tax Revenues
Puerto Rico uses 94 percent of the federal tax revenues to support investments in infrastructure, health, education, and environmental preservation.
Six percent is being spent to promote the territory’s rum industry. Local law limits to 10 percent the amount that can be used for this purpose. These funds support marketing, efficiency and innovation initiatives of the industry as a whole and do not directly benefit individual rum companies.
Puerto Rico adheres to this limitation to keep the use of the funds true to the original intent of Congress in transferring the taxes to Puerto Rico’s government.
Excessive Subsidies and Fair Trade Concerns
The program as created by Congress was intended to provide budgetary support to the territorial governments – never that federal revenues be used to excessively subsidize rum companies.
The Government of the Virgin Islands has recently developed plans to use most of the federal tax to individually benefit two large corporations that brand and sell rum.
One of the arrangements would give a single company more than $60 million, nearly 50 percent, of the federal tax each year for 30 years. This amount is so large it would cover the entire cost of producing the product.
Puerto Rican producers say they will not be able to compete with distillers subsidized to the extent planned in the Virgin Islands. Giving the federal tax to rum producers that also sell the rum abroad would be an actionable subsidy under U.S. international fair trade commitments.
Future of the Program
Puerto Rico’s resident commissioner and eight other members of the U.S. House of both parties have sponsored a bill (H.R. 2122) to limit to 10 percent the amount of federal tax revenue that can be used to subsidize rum production. The federal taxes at issue have not been collected yet and their use is fully within the purview of the Congress to determine or limit.
The legislation sets parameters on what constitutes a reasonable subsidy under this federal program, and helps devise a fair and reasonable policy going forward to ensure congressional intent.
###
*****************************************
I’m a bit tired of the misinformation campaign coming out Puerto Rico on this issue. This so called fact sheet is rife with opinion. Let’s examine some:
- Puerto Rico adheres to this limitation to keep the use of the funds true to the original intent of Congress in transferring the taxes to Puerto Rico’s government.
False. There is no original intent. Have you seen the Congressional Research Service report? It specifically says the covered-over revenue has never been designated for particular purposes by Congress. The territories are free to do whatever they want with them. - The program as created by Congress was intended to provide budgetary support to the territorial governments – never that federal revenues be used to excessively subsidize rum companies.
See item 1. - Puerto Rican producers say they will not be able to compete with distillers subsidized to the extent planned in the Virgin Islands.
Sucks to be Puerto Rico. You’re the ones that imposed a limit on yourselves. Wanna compete? Make more rum. - The legislation sets parameters on what constitutes a reasonable subsidy under this federal program, and helps devise a fair and reasonable policy going forward to ensure congressional intent.
Sure it’s fair and reasonable…for Puerto Rico. They already have that self imposed limit. All the bill does is side-step the authority the people of the US Virgin Islands have over their own economy by whining to Congress.
So H.R. 2122 has been buckling for support so now we have US Senators trying to wade into the affairs of other districts. Senators Bill Nelson and George LeMieux sided with Puerto Rico in an obvious play for Hispanic votes in Florida. Sen. LeMieux even went as far as to try to add an amendment to the upcoming Jobs Bill that would change the cover over so that it’s no longer awarded by rum production but by district population. This would result in Puerto Rico getting 97% of the cover over compared to the current 80%. Fortunately it looks unlikely that it would get the votes. But this is represents an even bigger issue. Would Florida be able to propose legislation that affects the amount of money California gets? Heck no! The fallout would be massive. So why is it ok in this instance? I guess we’re just the red headed stepchildren on this one.
