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Booze Pirates Fleece Puerto Rico With the Help of Congress

Posted on Feb 3, 2010

By Marcus Stern, ProPublica

(Page 2)

Like all Washington fights, this one has been a boon to lobbyists.

Last year, Diageo used its in-house lobbyists ($2.25 million), plus lobbyists at DLA Piper ($770,000) and Breaux-Lott ($10,000). The Virgin Islands used Callwood Associates ($270,000).

Puerto Rico is relying on its own internal lobbying arm in Washington, the Puerto Rico Federal Affairs Administration. The Conservation Trust of Puerto Rico, which will lose millions of dollars in annual funding for its land acquisitions if the Diageo deal stands, has hired Policy Impact Communications ($120,000) and, most recently, Quinn Gillespie & Associates ($40,000).

The Virgin Islands defends the deal by stressing the huge favorable impact it will have there. That argument was bolstered recently by a report (PDF) issued by the Congressional Research Service that said the Pierluisi bill “would result in severe limits on Puerto Rico’s and the USVI’s ability to finance economic development projects with this revenue source.”


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The Virgin Islands insists that Diageo would have moved its operations elsewhere if the Virgin Islands hadn’t offered the $3 billion rum-tax break and other incentives.

And the Virgin Islands argues that it’s too late to undo the Diageo deal, because the Virgin Islands already has used the anticipated revenue to back $200 million in bonds to pay for Diageo’s new distillery.

Puerto Rico’s supporters point out that Puerto Rico has its own bonds backed by anticipated rum-tax money. The governor has laid off 17,000 public employees because of the sagging economy, and they say the loss of the rum-tax money will mean more layoffs.

Serrallés says transferring so much of the rum-tax rebate as a subsidy to Diageo and other rum makers will undermine congressional support for a vital assistance program that dates to 1917.

“These guys (the Virgin Islands) are prepared to give $3 billion, $4 billion to rum makers over the next 30 years,” he said. “Congress is going to say, ‘These people (the territories) can’t control this program. It’s all ending up in the hands of the rum makers.’ ”

But if members of Congress are worried about that perception, it’s not evident yet.

Most of the rum-tax rebate is renewed automatically each year, without any action by Congress. But a small portion—less than 8 percent—must be approved by Congress.

Last month, that portion came up for a vote before the House, buried inside a much larger tax bill. If any lawmaker had concerns about the Diageo deal, that was a good time to speak up. Nobody did.

Now the tax bill goes to the Senate, where there is speculation it will be attached to the politically popular jobs bill. Buried inside such attractive legislation, the rum tax is likely to again slip through without debate.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism in the public interest.

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By keepontryon, February 5, 2010 at 6:53 am Link to this comment

After 25 years of watching this tax scheme be used for political purposes (Is there any other kind?) I know of one simple solution for someone to put into a new contract with America:

Abolish the tax on rum! Then let the rum industry figure out where to grow sugar to import as it has not been harvested in PR for soon to be ten years. Of course, without the tax, rum will compete better and perhaps allow makers to sell more at a price higher than now, but less to the consumer without the tax.

Result: Distillers in St. Croix and P.R. both live or die based on the market and not the political football tax. That gives everyone a level playing field.

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By Kent, February 4, 2010 at 8:40 pm Link to this comment
(Unregistered commenter)

Having lived in Puerto Rico for five years…this is just the tip of the iceberg.  The
only reason it’s not independent is because most Americans have no idea how
much they’re being fleeced by the island’s politicians.  And, I won’t even get into
the absolutely astounding crime and graft.  There are many good people down
there, but the island HAS to be cut loose.

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race_to_the_bottom's avatar

By race_to_the_bottom, February 3, 2010 at 9:29 pm Link to this comment

This is the “democracy” that is so much bragged about in the US!

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By Louis Fuchs, February 3, 2010 at 8:08 pm Link to this comment
(Unregistered commenter)

Foreign governments with lobbyists in Washington???  Foreign government
officials as “non-voting members of Congress???  Are they paid the same as our
representatives - or should I say our corporate representatives???

When are these foreign government going to start paying taxes to the U.S.

Government of the people, by the people and for the people has gotten off the
straight and narrow.  It’s time for the government to start telling us the actual
facts so that we can participate in our government.  We need complete

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By PatrickHenry, February 3, 2010 at 3:52 pm Link to this comment

I am not a big fan of taxes but this givaway is tantamount to treason.

I need Diageo to do my taxes.

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