Lawmakers lean on Pelosi and Rangel as controversy mounts over taxes on rum

The tug-of-war between Puerto Rico and the U.S. Virgin Islands over rum taxes has grown more intense in the wake of House passage of the healthcare bill.

Puerto Rico’s top supporters in the lower chamber this week fired off letters to Speaker Nancy Pelosi (D-Calif.) and Ways and Means Committee Chairman Charles Rangel (D-N.Y.) imploring them to turn their attention to the dispute between the two island territories.

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The members who signed the letter to Rangel were Puerto Rico Resident Commissioner Pedro Pierluisi (D), as well as Democratic Reps. José Serrano (N.Y.), Luis Gutierrez (Ill.) and Nydia Velázquez (N.Y.). The same legislators, minus Pierluisi, sent a similar letter to Pelosi.

At issue is an unusual tax deal that lured rum producer Captain Morgan from its longtime home in Puerto Rico to a new facility in the Virgin Islands — with the promise of billions of dollars in subsidies to the liquor company paid from U.S. rum taxes.

Puerto Rican legislators are outraged that Diageo, the British-owned liquor giant that produces Captain Morgan, is receiving tax dollars the U.S. government intended for the territories’ economic development and infrastructure needs. Pierluisi has written a bill that would cap the amount of U.S. rum-tax money the islands can spend directly on the liquor industry at 10 percent.

Virgin Islands officials, including Del. Donna Christensen (D), have countered that Diageo was planning on leaving Puerto Rico anyway and likely would have set up rum operations in South America, costing U.S.-territory jobs.

What makes the Diageo move so troubling for Puerto Rico is that the company will be provided with direct subsidies and other incentives that could amount to up to 50 percent of the Virgin Islands’ rum tax revenue. Puerto Rican policymakers worry that the Virgin Islands will give similar deals to other companies, which could offer their rums at reduced prices, making it impossible for other rum producers to compete. In fact, the Virgin Islands recently announced a similar deal with rum-maker Cruzan, which was already operating in the territory.

Conservative estimates place the Diageo gain from this enticement at more than $2.7 billion over 30 years, according to Pierluisi and other critics of the arrangement, who also argue that it will cost Puerto Rico $6 billion over 30 years and 320 rum production jobs.

The lawmakers asked Rangel to provide time on the Ways and Means Committee schedule to consider their bill and for the opportunity to brief members of the panel about it.

“[The bill] would ensure cover-over funds are used by territories in a responsible manner and to benefit the general public in both jurisdictions,” they wrote in the letter, which was obtained by The Hill. “The bill will help preserve strong bipartisan support in Congress for the cover-over [tax] program. Absent the adoption of [the bill] or something similar, we fear that the program will be vulnerable to the charge that it is mere corporate welfare.”

They wrote a similar letter to Pelosi asking for a meeting to discuss the matter at her “earliest convenience.”

“We are writing to express concern regarding a federal tax program, which, if left unchanged, will end up providing corporate largesse at the expense of the taxpayer,” they said in the letter.

Rangel has not scheduled any time on the Ways and Means calendar for consideration of the Pierluisi tax bill.

The bill has seven co-sponsors who hail from both sides of the aisle: Reps. Gutierrez, Serrano, Velázquez, Joseph Crowley (D-N.Y.), Darrell Issa (R-Calif.), Walter Jones (R-N.C.) and Dan Burton (R-Ind.).

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The rum-tax controversy has taken a backseat recently as Democratic leaders focused on passing healthcare reform. Pierluisi and other members of the Congressional Hispanic Caucus lobbied this fall to secure higher Medicaid reimbursement rates in the House measure that passed last weekend. Pierluisi cited the Medicaid provisions in backing the bill, saying it “addresses unprincipled funding disparities that the territories have always faced under Medicaid.”

Rangel, meanwhile, has attracted criticism in recent weeks for lining his campaign coffers with donations from those on both sides of the contentious rum-tax issue.

Contributions to Rangel from the Virgin Islands totaled more than $167,000 between 1999 and 2008, and more than half of that — $84,800 — was given during the 2007-08 election cycle, just as the islands were finalizing the deal to relocate Diageo’s rum operations.

Since Puerto Ricans found out about the deal, their giving to Rangel also has shot up. Puerto Rico now ranks second only to New York this cycle in places from which Rangel has collected contributions, according to CQMoneyLine and a report in The Washington Times. Donors in Puerto Rico have written $36,600 in checks to Rangel this cycle.

Rangel, who is under investigation by the ethics committee for unrelated charges of financial violations, has denied taking sides in the rum-tax dispute and has not indicated whether he will consider moving Pierluisi’s bill.

Rangel’s office did not respond to a request for comment for this article.