Related topics

N.Y. Lawmakers May Redirect Rum Tax

November 15, 1999

WASHINGTON (AP) _ On Capitol Hill, a ``rum cover-over″ isn’t some sort of frozen cocktail or an unusual term for a morning-after headache. It is an obscure tax paid by consumers on every bottle of imported rum.

Puerto Rico and the U.S. Virgin Islands have no votes in Congress but do not lack for friends among lawmakers from New York, which has roughly 1.5 million people of Puerto Rican descent.

At stake is whether Congress will return the full amount of tax revenues or give Puerto Rico and the U.S. Virgin Islands only a portion.

That is where the New Yorkers come in _ and where lining up to help are state politicians from Democratic Sen. Daniel Patrick Moynihan to Republican Rep. Rick Lazio.

``Most of the people we talk to and knock on doors in the New York delegation are very helpful,″ said Carlos Romero-Barcelo, a Democrat who is Puerto Rico’s nonvoting delegate to Congress. ``It’s a constituency that is getting more and more involved in politics and more conscious of voting in the states.″

It is also a constituency that will play a role in the expected Senate race between New York Mayor Rudolph Giuliani and first lady Hillary Rodham Clinton. President Clinton’s Treasury Department, in fact, is solidly behind the rum tax provision sought by Puerto Rico.

At issue is $3 of the $13.50 in excise taxes paid on every gallon of imported rum sold in the United States.

For decades, those rum tax collections have been ``covered over,″ or transferred, to Puerto Rico and the U.S. Virgin Islands for government there to spend as they see fit.

In 1984, however, because of a dispute over the way Puerto Rico handled its money, Congress capped the transfer at $10.50 per gallon of rum. It temporarily was raised to $11.30 in 1993, but that law expired in 1998 and returned it to the lower amount.

``When they need money for something, they grab it from the easiest place,″ said Romero-Barcelo. ``We have no representation.″

Now, Moynihan and Rep. Charles Rangel, D-N.Y., are leading an effort to give the islands the full $13.50 per gallon. The Congressional Budget Office estimates that would cost taxpayers $83 million in fiscal 2000 alone.

Of the $3 per gallon, 50 cents would be deposited in a private, non-profit environmental trust established in 1968 to protect Puerto Rico’s natural resources. Its main funding source, an oil import fee, is being phased out.

Puerto Rico produces 77 percent of all rum sold in the United States, according to the Puerto Rico Industrial Development Corp. The Virgin Islands produces a significant portion of the rest.

Moynihan, the top Democrat on the Senate Finance Committee, succeeded in getting the rum language tucked into the Senate’s version of ``extenders″ legislation that would renew several other expiring tax provisions, such as the corporate research and development tax credit.

In fact, the bill also would expand the research and development credit to include businesses in Puerto Rico _ another priority of Moynihan’s. That would cost taxpayers about $4 million over five years but could increase if more high-tech companies locate on the island.

There has been some resistance in the House to the rum item, particularly from Ways and Means Committee Chairman Bill Archer, R-Texas.

``The chairman views this as more of a spending program,″ said Archer spokesman Trent Duffy. ``This is a goal that should be accomplished on the spending side of the ledger.″

But chances are good the item will wind up in the final version of the tax extenders bill. It was included in a proposal recently offered by Treasury Secretary Lawrence Summers

``It is definitely in play,″ said Ginny Flynn, spokeswoman for Sen. William Roth, R-Del., chairman of the Senate Finance Committee.

Negotiations between Congress and the White House on the overall bill are expected to wrap up this week.

Success would be especially good news for the U.S. Virgin Islands, where a succession of fierce hurricanes and a drop in tourism have produced government deficits, said LoAn Sewer, spokeswoman for that territory’s nonvoting congressional delegate, Donna Christian-Christensen.

``There are a lot of factors that have snowballed,″ Sewer said.

The U.S. Virgin Islands figures it would get about $12 million a year from the increased rum tax transfer and is depending on large measure on Puerto Rico’s political clout to get the job done.

``We don’t have the same numbers,″ Sewer said.

Update hourly