Federal Tax on Rum Supporting Puerto Rico and U.S. Virgin Islands

SOURCE npr.org
The federal tax on rum in the U.S. generates over $700 million a year, with most of the money going to support Puerto Rico and the U.S. Virgin Islands. However, a controversial deal in 2008 led to a race to the bottom between the two islands, resulting in budget crises and increased subsidies for rum companies.

Key Points

  • The federal tax on rum generates over $700 million a year, with most of the money going to support Puerto Rico and the U.S. Virgin Islands
  • Controversial deals and subsidies in 2008 led to a race to the bottom between the two islands
  • 40% of the rum tax money sent to Puerto Rico and the U.S. Virgin Islands now goes to rum companies, compared to less than 10% previously

Pros

  • Generates significant revenue for Puerto Rico and the U.S. Virgin Islands
  • Provides a guaranteed stream of income for the territories

Cons

  • Controversial deals and subsidies led to a race to the bottom between the two islands
  • Budget crises in the U.S. Virgin Islands due to changes in the rum tax program