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Wednesday, September 2, 2009

Tax Dollars to British distiller for Captain Morgan rum

As a general rule, we feel that any intervention by the government into the wine-beer-spirits industry usually causes more harm for both consumers and producers. And yet, we are left scratching our heads in bewilderment in this one instance in which the federal government is actively trying to assist a spirits producer. According to the Chicago Tribune, the administration is giving London-based Diageo PLC - makers of Captain Morgan - "$2.7 billion in tax breaks in building a state-of-the-art distillery on the island of St. Croix in the Virgin Islands". We have many reasons to doubt the logic of this move.

First of all, Diageo PLC is the world's largest spirits producer and made a $2.62 billion net profit from June 2008 to June 2009. Second, with record deficits, do we really want to subsidize billion dollar companies - talking about corporate welfare. Finally, Captain Morgan is currently produced in Puerto Rico - so its not like the government is trying to entice a company to move production from another country. The company is moving from one U.S. territory to another.

"The Virgin Islands government will finance the new $165 million distillery by issuing bonds... and the estimate it will create 40-70 jobs on the island." Let's do some math, if 70 jobs are created that means they spent $235,714 per job each year for 10 years. On the other hand, the Puerto Rican government claims that their island could lose up to 300 jobs. I have a suggestion, why don't we just let Diageo PLC use portions of their $2.62 billion net profit to finance the move.

1 comment:

WineCompass said...

I saw that you picked up Tom Hamburger and Peter Wallsten’s story, “British distiller gets billions for rum,” and following is a letter to the editor for your consideration from the Governor of the US Virgin Islands, John DeJongh.

Dear Editor,

Your story, “British distiller gets billions for rum,” fundamentally misstates the law that supports the partnership between the U.S. Virgin Islands and Diageo. The revenue generated by this partnership is, by U.S. law, tax revenue of the Virgin Islands . It has helped us stabilize our current financial position due to the recession, address our pension deficit, and build roads and schools. This partnership is sanctioned by a Congressionally approved program that is not a "special tax", but a fundamental part of the financial relationship between the U.S. and its territorial possessions; extended to the USVI in 1954. For Puerto Rico to cry foul as they continue to subsidize their rum companies under the same program, one that they have benefited from since 1917, is disingenuous. They were prepared to let Diageo take its production of rum destined for the U.S. market out of the United States . We were not. We are proud that Diageo will produce its rum on St Croix and pleased that this will generate great benefits to the people of the U.S. Virgin Islands for many years to come.


John P. deJongh, Jr