Rum excise tax benefit poised for extension

Written by  //  December 14, 2010  //  Economy  //  No comments

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A display of rum at a liquor store. (Credit: Wikipedia)

Puerto Rico stands to gain if the tax package crafted by President Obama and Republican lawmakers passes in the House, as it contains an extension of the rum excise tax that shores up millions for the island each year.

The bill, which the Senate passed on Monday, is headed toward the House, where it could be stuck until an agreement is reached on certain changes sought by Democratic leaders.

The bill includes the extension of the $13.50 per proof gallon excise tax on distilled spirits produced in or imported into the United States, directly benefiting Puerto Rico and the U.S. Virgin Islands. The bill extends the provision through which the U.S. Treasury Department gives back to the islands $13.25 per gallon until 2011.

The benefits are part of a comprehensive tax package that includes some 60 incentives to individuals and industries totaling some $858 billion over the next two years.

The so-called “extender provision” included in the package approved “are meant to stimulate the economy and investment but there are ongoing debates about whether they work,” Mark Robyn, staff economist with the Tax Foundation, told ABC News on Tuesday.

This tax reimbursement program generates about $262 million for Puerto Rico and $80 million for the USVI each year.

However, the possibility of an extension of the rum tax break comes as the battle rages on between the neighboring islands over the decision by Diageo — producer of Captain Morgan — to move from Puerto Rico to the USVI in pursuit of hefty incentives offered by the latter.

Puerto Rico stands to lose some $120 million in annual rum tax revenue and 340 jobs after Diageo leaves.

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