Supporting The People Of Puerto Rico And The U.S. Virgin Islands

Floor Speech

* Madam Speaker, I rise tonight to encourage my colleagues to support H.R. 2122, a bill introduced by our colleague Delegate PIERLUISI to ensure that the cover-over tax levied on the rum exports from Puerto Rico and the U.S. Virgin Islands are used for their original intended purpose; namely to promote the general welfare of the territories' citizens in addition to promoting overall economic development. Currently, the funds are being used, in my opinion, to unfairly support blatant corporate welfare for a foreign-owned company. We do not need to be sending our tax dollars to foreign corporations when we have record unemployment in this country.

* Rum that is produced in either Puerto Rico or the U.S. Virgin Islands, and that is sold in the continental United States, is subject to the same Federal tax as rum produced in the States--roughly $13.50 for each proof-gallon. However, in the case of the territories, the majority of the revenue is returned by the Federal government to the respective territory, and then the remainder is retained by the Federal government. This so-called ``cover-over'' tax provision--which has enjoyed strong bi-partisan support for many years--allows the territories to pay for important local programs.

* Unfortunately, this provision is now being abused to award a sweetheart deal to the British alcohol distiller and importer Diageo. Under the terms of this sweetheart deal, London-based Diageo will receive 46 percent of the U.S. Virgin Islands' cover-over to pay for a new distillery. Madam Speaker, Diageo is worth roughly $35 billion according to the latest figures. To give Diageo 46 percent of the funds intended for the general welfare of the people of the Virgin Islands, in my opinion, violates the spirit if not the letter of the law. If this type of manipulation is allowed, many experts believe, a race to the bottom will result, with the territories attempting to poach businesses from each other with larger and larger sweet-heart deals paid for by the cover-over funds.

* For example, Puerto Rico currently receives about $400 million in carry-over funds per year. From that pool of money, Puerto Rico pays about six percent to the company, Rums of Puerto Rico, and Puerto Rican law states that no more than 10 percent of the funds it receives from the rum cover-over program can be used to subsidize rum producers on the island. This is a reasonable approach. It ensures that Puerto Rico can attract businesses to the island while still having the resources to carry out public works projects.

* H.R. 2122 carries forward this common-sense approach. Under the terms of the bill, either Puerto Rico or the U.S. Virgin Islands may use its cover-over funds to provide unfair subsidies to rum producers. Further, if it is determined by the Secretary of the Treasury that a territory has unfairly subsidized a rum producer, the Secretary can transfer some of the cover-over funds intended for that territory that provided the unfair subsidy to the territory that has been disadvantaged. The legislation defines ``unfair'' or ``per se unreasonable'' if the subsidy exceeds ten percent of the covered-over amount returned to the territory's treasury.

* Madam Speaker, let us remember the original intent of the cover-over funds, which was to help the territories fund important civil programs for the benefit of the people of Puerto Rico and the Virgin Islands. The purpose was most certainly not to provide corporate welfare to large foreign-owned conglomerates. H.R. 2122 will ensure that the original purpose of the cover-over tax--to advance the general welfare of the citizens--is being carried out. I urge my colleagues to support this common-sense bill.

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