CBC urges Menendez against moving rum tax bill

The Congressional Black Caucus has cautioned Sen. Robert Menendez (D-N.J.) against moving legislation that would cap Caribbean rum tax subsidies used by Puerto Rico and the U.S. Virgin Islands to help fund infrastructure projects.  

"We note with alarm that a bill that you have introduced has the potential to cause irreparable harm to the economy and the people of the U.S. Virgin Islands," the CBC wrote to Menendez on May 11.

Rum producers in Puerto Rico and the Virgin Islands (USVI) pay an excise tax that is eventually refunded to the islands for economic development. Payouts are based on where the rum is produced and often benefit the companies themselves. Puerto Rico currently receives the lion's share of the subsidy, but it would lose millions if rum producer Diageo follows through with its plan to move from the island to the USVI.

Some argue Menendez's bill that caps subsidy payments to companies at 10 percent would essentially stop Diageo from moving to the USVI. The CBC warns that the USVI will suffer an economic hardship if the deal falls through because revenue from the subsidy, which in part has already been tagged to create a water treatment facility that the rum producer would use. 

"Your bill [...] has the potential to shutter a centuries old industry as it would interfere in legally binding contracts," the CBC letter states.

The House recently passed its so-called tax extenders bill without making material changes to the subsidy. That legislation now awaits action in the Senate, and some are concerned that Menendez will try to amend the bill with his proposal.   

"I commend the House of Representatives for assuring the program's continued success through the tax extenders bill, and now that the Memorial Day recess is finished, I urge the Senate to follow suit," said USVI Gov. John deJongh Jr. "I strongly encourage them to reject harmful amendments from Puerto Rican allies hoping to overturn the territory's partnership and harm our economy."

Sarah Echols, communications director for the Puerto Rico Federal Affairs administration, urged passage of the Menendez bill because Diageo would profit handsomely from the subsidy. She claims the rum producer would receive $2.7 billion over a 30 year period if it moved to the USVI.