The year was 1917, just three years after the Panama Canal opened, the United States entered World War I in April, and the Jones Act granted Puerto Rican citizens U.S. citizenship in March. 1917 was also the year the U.S. Congress passed the little-noticed “Rum Concealment Act” as a way to help the new island Dominion of Puerto Rico develop much-needed infrastructure by retransferring federal excise taxes on rum produced in the Dominion to Puerto Rico.
117 years later, what was designed as a temporary tax rebate to help rebuild the newly acquired and then-underdeveloped island of Puerto Rico after the Spanish-American War is still in place today, illustrating the adage that “temporary” tax measures are rarely truly temporary.
In fact, the rum tax “exemption” was expanded in 1954 to include the U.S. Virgin Islands and was used to help fund infrastructure projects on those islands.
These tax rebate projects in recent years have done little to build schools, roads or power plants in Puerto Rico or the U.S. Virgin Islands. The revenue measures have provided huge benefits to private distillers such as Diageo and Bacardi that produce rum in these Caribbean territories, including subsidizing major expansions of their facilities.
Don't get me wrong, I like a nice rum shot every now and then, but in 2024, where is the economic justification for the governments of Puerto Rico and the U.S. Virgin Islands to benefit from a federal excise tax rebate? Annual totals could reach hundreds of millions of dollarsand will it be paid back to the rum distilleries as a subsidy?
As stated in Analysis of the rum cover-upIn recent years, the governments of both Puerto Rico and the U.S. Virgin Islands have manipulated this federal tax rebate system to funnel funds to the world's largest rum manufacturers, such as Bacardi, which allows these companies to expand their distilling capacity and increase their rum production, thereby receiving a larger share of the “cover” excise tax. All of this, by the way, distorts the market and does not necessarily help the local economies of either Puerto Rico or the U.S. Virgin Islands.
But everyone directly involved benefits handsomely — except, of course, American taxpayers, who indirectly pay the taxes lost through rum rebates.
There have been previous efforts in Congress to end the rum subsidies, but none have secured the public interest or the votes to withstand the lobbying that inevitably accompanies such corporate generosity.
The immortality of tax incentives like the rum cover-up is due to the fact that the current 118 tax incentives areNumber Congress, the only bill affecting the rum concealment program was HR3146 – in fact increase It directs that a portion of the rebate be used to fund certain environmentally friendly “sustainable agriculture” programs in Puerto Rico.
Perhaps the lame-duck session of Congress will provide an excuse for the House to finally abandon this corporate welfare program as part of a larger budget reconciliation effort. Otherwise, the rum-hiding program will remain a prime example of crony capitalism at its best, or at its worst.
Bob Barr represented Georgia's 7th Congressional District in the U.S. House of Representatives from 1995 to 2003. He served as the U.S. Attorney in Atlanta from 1986 to 1990 and was a CIA officer in the 1970s. He currently serves as chairman of the NRA, practices law in Atlanta, Georgia, and is president of Liberty Guard.
The views and opinions expressed in this editorial are those of the author and do not necessarily reflect the official position of the Daily Caller.
