TEA PARTY LETTER TO BOEHNER CALLS FOR ELIMINATION OF RUM PROGRAM

April 7, 2011

The Honorable John BoehnerSpeaker,

U.S. House of Representatives

US Capitol BuildingWashington, D.C.

Dear Speaker Boehner: 

The Tea Party movement grew throughout our country due to the irresponsible spending pattern of elected officials who were mortgaging the future of our children.  The message from voters last November was clear, control spending and eliminate federal spending in inefficient and unnecessary programs.

The current federal deficit demands that Members of Congress evaluate inefficient and entrenched federal programs and subsidies that have a burden on American taxpayers.  One such program is the Rum Cover Over Program which will cost U.S. taxpayers an estimated $7 billion in the next 10 years.

Under the Rum Cover Over Program, most of the federal excise taxes collected from rum, that is produced off the mainland and sold in the U.S., is returned to rum-producing territories as economic aid and there are virtually no strings attached to how that money is spent.  And recently, this program has become an outrageous corporate welfare program designed to line the pockets of foreign companies at the expense of U.S. taxpayers.

In 2008, the U.S. Virgin Islands (USVI) entered a thirty-year agreement (renewable for up to sixty years), with the British firm Diageo, to relocate their rum production facility to the island of St. Croix. Diageo will receive almost half of the Virgin Islands' rum-tax money, a 90 percent income-tax break, and a property tax exemption. The government will also build Diageo a new state-of-the-art distillery in the Virgin Islands and will guarantee sugar prices, which is a key ingredient used to produce rum, for the next 60 years. The deal could be worth well over $6 billion to Diageo.  What do the Virgin Islands receive? Well, Diageo agreed to hire 40 or more local workers – that’s a cost of $2 million per job per year over the course of the agreement. 

And it’s getting worse.  According to domestic alcohol industry insiders, the USVI is now aggressively pursuing domestic manufacturers – through incentives – to relocate their operations to the territory and to purchase USVI bulk rum to blend into domestic alcohol products.

Not only would such developments further line the pockets of private companies, but the resulting economic losses to the United States would be devastating: 

 Page 2Letter to Speaker Boehner

April 7, 2011

• Losses to domestic corn producers – the main ingredient used in domestic alcohol production – could reach $1.4 billion annually. This would be in addition to the accompanying loss of agriculture sector jobs;
• Almost immediately, $185 million per year in federal dollars could be paid directly to private companies, with an increasing amount paid in future years as producers relocate;
• Domestic producers will be put in the perilous position of either accepting the USVI terms or competing against them. However, USVI producers are so heavily subsidized that their incentives exceed their production costs. In fact, molasses – the key ingredient is making rum – currently sells for about $1.50 per gallon. The USVI will pay no more than 16 cents, even if the price skyrockets.

Under normal circumstances, lawmakers’ responses to lost jobs due to relocation may be limited. However, there is something wrong when U.S. territorial governments use federal tax revenues to provide lavish subsidies to private firms – and destroy American jobs – while our elected officials sit by idly.  Congress must immediately end this outrageous subsidy that will hurt American business at a cost of nearly $7 billion to U.S. taxpayers in the next 10 years.

Congress cannot continue to turn a blind eye to this outrageous and wasteful “corporate welfare” giveaway.  If once again Congress fails to act on the immediate repeal of this wasteful program, it will confirm that politics today remains an inside game between those corporate lobbyists seeking favors and those giving them away. Politicians can point fingers and engage in a blame game, but who is going to come forward and call for an end to this outrageous tax scheme that threatens to destroy American jobs and divert additional tax dollars to a foreign liquor conglomerate? It is time to end the double-talk and take action and end this abusive program.

On behalf of Tea Party organizations from across the country, we urge you to stand up for American taxpayers and demand that the House Ways and Means Committee move immediately to eliminate this corporate welfare subsidy.

Best regards,  
Palm Springs Patriots

Coalition Desert Valley Tea Party Patriots