U.S. Territories Defend Bailout's $192M Tax Break on Rum

A tax break for rum produced in Puerto Rico and the U.S. Virgin Islands may trigger a hangover for proponents of Congress' huge bailout bill after the U.S. Senate tacked on tax reductions for the islands' liquor.

A group of House Republicans in Washington who have opposed the $700 billion bailout indicated Thursday they would support the bill if it is slashed to $250 billion and if several tax breaks added by the Senate — including the one for rum — are removed.

But authorities in Puerto Rico and the U.S. Virgin Islands pointed out Thursday that the bill to cover federal taxes on rum from the tropical territories dates back to a 1917 act and is typically renewed with little fanfare.

"People who didn't notice it previous years, well, they definitely noticed it now due to the financial mess," said Jaime Gonzalez, senior policy adviser for Puerto Rico's nonvoting representative in Congress.

Territory officials say the measure is not a payout to rum producers, and the proceeds help finance infrastructure and public services.

Ryan Alexander, the president of Taxpayers for Common Sense, a Washington-based watchdog group, said including tangential items such as the rum provision in the midst of a high-stakes debate over a historic bailout package was "pulled out of an old bag of tricks."

"Many of these tax extenders have been waiting in the wings for months, hoping for a legislative train to leave the station," Alexander said in Washington. "In these times of historic economic turmoil, it is hard to believe that these narrow tax benefits are in the best interests of the country."

Donna Christensen, the nonvoting congressional delegate from the U.S. Virgin Islands, denied the rum measure is "pork barrel" spending. She described it as part of Washington's traditional benefits to the governments of the U.S. islands, where rum is a key industry. The tax break expired on Dec. 31, 2007, and the bill would extend it.

In Washington, a group of 23 House Republicans — 20 of whom voted "no" on Monday to the bailout — held a news conference Thursday to call for the amount of bailout to be lowered and for the removal of the four tax breaks. Republican Rep. David Hobson of Ohio called the add-ons "outrageous."

In its current form, the estimated cost of the U.S. Caribbean rum tax proposal, which provides payment to Puerto Rico and the U.S. Virgin Islands for rum imported into the mainland, is $192 million over 10 years.