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The Rum Wars

Since 1917, Puerto Rican rum has had an excise tax imposed when sold in the U.S., and the U.S. government has sent roughly the same amount of money back to Puerto Rico. In recent years, this “cover-over,” as it’s called, has amounted to about half a billion dollars a year for Puerto Rico. The U.S. Virgin Islands gets the same deal, but they’ve received only a fraction of the income from it — about 20% as much as Puerto Rico.

In an effort to catch up, the Virgin Islands offered Diageo PLC part of the cover-over if they’d move their distillery from Ponce to St. Croix. They agreed, leaving a 6th generation rum company devastated.

The British company, which makes Captain Morgan rum, will cost Puerto Rico about $140 million this year — money that went toward schools, health care, and the island’s infrastructure.

Puerto Rico is having to follow the lead of the Virgin Islands, in fact, in order to keep its rum producers in business at all, since the economy depends heavily on this product. The result is that quite a bit of the money from the federal government will now go to private companies

It may sound like a business issue, but the Virgin Islands is using American tax dollars to provide incentives to a U.K. company. The money was divided about 86/14 between Puerto Rico and the Virgin Islands, and it will now be more like 60/40. However, much of that money will now be diverted to private companies, the majority to a company based in the UK. The amount of government funding that is available for the needs of the people of the two U.S. territories will remain the same, but less of it will go toward the welfare of the people, and much of it will leave the Americas.

This wouldn’t happen in the United States.

If Puerto Rico and the U.S. Virgin Islands had full representation in Congress, they wouldn’t be paying Captain Morgan  money needed to educate their children. Their access to health care wouldn’t depend on wheeling and dealing with distilleries.

Read what Diageo and Bacardi have to say on the subject.

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