More for the dork who thinks he knows so much~
You can't look at those projects without gaping goggle-eyed at the size of the incentives. The Virgin Islands — a land mass only about twice the size of Washington, D.C. — awarded the two companies a collective total of US$3.7 billion in subsidies. Yes, that's "b" as in big, brands and brouhaha.
The Diageo deal materialized first. In June of 2008, the British company signed an agreement that will give it tax credits and other benefits worth a cool $2.7 billion; Diageo is now relocating Captain Morgan rum production from Puerto Rico. The Fortune Brands deal was finalized on Nov. 5, when Virgin Islands Gov. John deJongh Jr. signed into law an agreement that gives the U.S. firm more than $1 billion in incentives for an expansion of its existing distillery.
The Virgin Islands, however, isn't doling out those staggering sums all at once. Those subsidies will be parceled out to Diageo and Fortune Brands over a span of 30 years — the length of time that both companies have committed to continue making rum in the Virgin Islands.
"Our agreements with Diageo and Fortune Brands are part of our economic development strategy that's focused on locking in brands for the long term," Gov. deJongh explains in his e-mail response to questions from The SiteNet Dispatch. "By making the U.S. Virgin Islands the exclusive production location for 30 years, our agreements will build greater stability, not only for the U.S. Virgin Islands and its government, but also for our business partners."
But where is all that money going to come from? How does a place as small as the Virgin Islands come up with $3.7 billion for the Diageo and Fortune Brands subsidies?
Actually, there is a way — one that means that the territory won't have to break its piggybank. In fact, the Virgin Islands won't need to tap any existing funds whatsoever to fund the two expansions.
"The Virgin Islands won't have to invest anything in those two projects from the general fund or from any other government source," Paul explains. "Keep in mind that those agreements are only one piece of Gov. deJongh's broader long-term plan to stabilize the economy. But, yes, the Diageo and Fortune Brands agreements are completely self-funding projects."
But yo ho ho, how can that be so?
The answer lies in an obscure federal tax law known as "the rum cover-over program." The initiative traces back to 1917, when the U.S. government decided to tax Puerto Rican rum-makers on rum sold within the United States. Congress created a program to rebate — or "cover over" — almost all of the rum excise taxes (currently about 98 percent). That, lawmakers explained 92 years ago, would generate a local revenue stream to pay for Puerto Rico's economic development, social services and infrastructure. Then in 1954, Congress extended the cover-over program to the Virgin Islands.
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