Obama-GOP Tax Deal Redistributes Wealth to Caribbean Rum Makers

By Matt Cover | December 10, 2010 | 2:03 PM EST

Liquor for sale in supermarket. (Photo: Ralf Roletschek/Wikipedia Commons)

(CNSNews.com) – A provision tucked into the tax-rate and unemployment-benefit extension bill that President Barack Obama has negotiated with Republican leaders in Congress extends a program that redistributes wealth to rum makers in Puerto Rico and the U.S. Virgin Islands.

The provision appears in Section 755 of the bill, which can be found on the 68th page of the 74-page bill.

The provision extends so-called “cover-over” payments that the federal government has been making to the governments of Puerto Rico and the U.S. Virgin Islands. Essentially, the program returns nearly all of the excise-tax revenue that the federal government collects on the sale of rum produced in these two U.S. territories.

Currently, federal law charges an excise tax on all liquor produced and sold in the United States, including rum from Puerto Rico and the U.S. Virgin Islands.

The special provision in the bill returns to Puerto Rico and the U.S. Virgin Islands $13.25 of the $13.50 per gallon excise tax on the rum produced there. In fiscal year 2008, those payments amounted to $371 million for Puerto Rico and almost $100 million for the U.S. Virgin Islands, according to a Congressional Research Service report.

"The law does not impose any restrictions on how PR and USVI can use the transferred revenues," says the Congressional Research Service. But: "Both territories use some portion of the revenue to promote and assist the rum industry."