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Why is Charlie Rangel bailing out the rum industry?

Pretty sure that more rum doesn't solve the illiquidity crisis

Remember Charlie Rangel? The Congressman illegally renting multiple apartments in New York City subject to rent control who is under investigation by the House Ethics Committee? Back in the 70s, he beat his predecessor, Adam Clayton Powell, in a primary over, among other things, shady dealings in the Bahamas. Now Rangel appears to have his own shady dealings in the US Virgin Islands.

The long and short of it is that Chairman Rangel is defending a provision of the bailout that allows the government of the Virgin Islands to subsidize (paid for with US excise taxes) the building of facilities for Diageo, the makers of Captain Morgan rum. Oh. And Rangel has a lot of donors in the Virgin Islands.

This one is a little complicated. So let me walk you through it.

There was a provision in the Bailout (aka TARP) that  allows “Puerto Rico and the U.S. Virgin Islands to pocket $192 million in federal excise taxes collected from rum-makers,” a substantial proportion of which is then handed out by the territories to rum-makers who maintain operations there in the form of “marketing subsidies and production incentives.”

Or at least it is by the Virgin Islands. Puerto Rico was apparently not giving Diageo, the maker of Captain Morgan rum, enough money from the public coffers.  So as of 2012, Diageo will be moving to the Virgin Islands, whose government is more willing to subsidize the company (which, you might be interested to know, had a £2.2 billion operating profit in 2008).  Under the deal cut between Diageo and the Virgin Islands:

…the Virgin Islands is to build Diageo a $165 million, state-of-the-art plant on the island of St. Croix. After assuming a $500 million debt obligation associated with the plant’s construction, the Virgin Islands will hand over the keys and title to Diageo. The Virgin Islands will tap its portion of the rum tax revenue to pay the $18.4 million in annual financing costs.

The 30-year agreement also gives Diageo a $2.1 billion marketing subsidy…

So what, right? Well … Chairman Rangel has a pretty good fundraising network in the Virgin Islands, and this wouldn’t be the first time he championed legislation benefiting Virgin Islands-based Rangel donors:

The chairman of the House Ways and Means Committee has proposed legislation that would effectively halt some current tax audits of people who get a tax break for living and operating a business in the United States Virgin Islands.

Many beneficiaries of the tax break are campaign contributors to the lawmaker, Representative Charles B. Rangel, Democrat of New York, according to data collected by CQ MoneyLine, which tracks political contributions.

So what, right? Well … Puerto Rico’s Resident Commissioner, Pedro Pierluisi, wants to put a stop to corporate handouts like this.  Sure, he’s got a good, in-my-backyard kind of reason, but it actually sounds like good policy. According to Reuters, Pierluisi “proposed legislation seeking to establish a special rule blocking Puerto Rico and the Virgin Islands from using rum rebates to provide ‘unreasonable’ subsidies to rum producers.  The bill defines an ‘unreasonable’ subsidy of more than 10 percent of the rum rebate funds a jurisdiction receives.” This legislation, which goes through Rangel’s committee isn’t moving.

So the question is why Rangel is so determined to give billions in corporate welfare in the Virgin Islands?

Maybe his donors there have an idea.

Or maybe he just “got a in little captain” in him and he’s just “standing up for what” he drinks.

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