Remember when TARP was passed, and there was a big to-do about all the “ornaments” that the Senate hung on the Christmas tree that had nothing to do with the financial system? Remember, a plastic, toy-arrow company got a tax break, along with tons of others, all in the name of garnering the requisite vote for passage (yay democracy!).
Anyway, turns out that not all of these were so minor, and not all of these tax breaks and handout went to American companies.
According to Bloomberg, one of the big beneficiaries has turned out to be UK liquor company Diageo, which is getting a huge tax break to locate to the US Virgin Islands, a tax break subsidized by those TARP add-ons.
At issue in the Diageo case is a federal tax policy known as the rum cover over. That’s the share of a $13.50 federal excise tax on every so-called proof gallon of rum sold in the U.S.
The money is collected by the U.S. Treasury Department, which then rebates it to the governments of Puerto Rico and the U.S.V.I. to help them pay for social services such as Medicaid. As territories, Puerto Rico and the U.S.V.I. get few direct appropriations from the federal government.
The tax has two parts: a permanent $10.50 federal tax dating to 1917 that Washington turns over in full to the territorial governments and a $3 additional tax added in two phases in 1984 and 1993, of which $2.75 is rebated.
Now, these rebates aren’t new, and as the article points out, almost all of these little tax breaks were renewals of previous pork schemes, and they were dropped into the bill out of expedience, and to get the votes done. If there was a real ick factor, it was that even legislation ostensibly designed to save the financial system still bore the taint of ticky-tack, special interest politics. [Actually, the real ick factor was the bailout itself, duh, but at the time this part felt very unseemly]
But what’s interesting in the Diageo/Virgin Islands case, is that the Virgin Islands is using its rebate money to lure Diageo from… Puerto Rico, also a US territory. So, rather than use the money to pay for social services, they’re luring a big employer, but it’s an even-sum thing for the US as a whole, since it’s another one of our territories that’s losing the plant. Reall glad we rushed that one through.