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Puerto Rico disaster bill would revive older tax breaks

House Democrats eye bigger refunds for low-income residents and tax relief for distilleries

California Rep. Mike Thompson pushed back on GOP criticism, saying it was common practice to combine relief provisions for disaster-stricken areas into one bill. (Tom Williams/CQ Roll Call file photo)
California Rep. Mike Thompson pushed back on GOP criticism, saying it was common practice to combine relief provisions for disaster-stricken areas into one bill. (Tom Williams/CQ Roll Call file photo)

House Democrats have tucked tax relief for rum distilleries and more generous refunds for lower-income island residents into a disaster aid package intended to help Puerto Rico recover from an unusually destructive spate of recent earthquakes.

Backers say the add-ons are part of an ongoing effort to help Puerto Rico and other territories such as the U.S. Virgin Islands, also hit hard by hurricanes in recent years. But Republicans call the effort a typical congressional maneuver of piling on to a must-pass bill.

House Appropriations Chairwoman Nita M. Lowey unveiled an updated version of the disaster aid package Tuesday, which the chamber is expected to take up next week. The expanded bill follows a series of earthquakes that hit the island in late December and earlier this month, and ongoing fights between Congress and the White House over held-up hurricane relief money. Puerto Rico was devastated by Hurricane Maria in 2017 and, in the midst of recovery, was hit by Hurricane Dorian last year.

The House Ways and Means Committee-drafted tax title contains a section that is nearly identical to a $6.8 billion provision in a bill the panel approved last June. It would encourage Puerto Rico and other U.S. territories and possessions to expand their earned income tax credit programs. Over the next five years, the federal Treasury would make matching payments to Puerto Rico for such EITC expansions, while the U.S. Virgin Islands, American Samoa, Guam and the Commonwealth of the Northern Mariana Islands would receive 75 cents on the dollar. 

That same earlier Ways and Means bill would also make payments to the territories for the cost of child tax credits, which are available to parents of children aged 17 and under up to certain income limits. The maximum credit per child is $2,000, though the portion available as a refundable credit, or over and above income tax liability, is $1,400; the Ways and Means-approved bill would make the full credit refundable for lower-income families.

For Puerto Rico and the other territories, the new disaster aid package wouldn’t eliminate the $1,400 cap, but it would otherwise replicate the effects of the earlier Ways and Means bill. It would also ensure that all Puerto Rican families can access the credit; under current law, only families with three or more children are eligible.

The disaster bill also includes a provision that would divert the full amount of the $13.50 per proof gallon rum excise tax paid by U.S. producers and importers to the governments of Puerto Rico and the U.S. Virgin Islands. Currently, the limit on amounts sent to the islands — known as a “cover-over” — is $13.25 per proof gallon, a figure that drops to $10.50 starting in 2022. The uncapped rum cover-over would be made permanent.

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Bacardi, Captain Morgan

Puerto Rico and the U.S. Virgin Islands spend some of those funds to promote and assist their large rum industries — Bacardi produces most of its rum at a large distillery in San Juan, while Diageo’s Captain Morgan and Beam Suntory’s Cruzan make their signature rum on St. Croix. Historically $0.46 per proof gallon of the covered-over funds have gone to the Conservation Trust of Puerto Rico, a nonprofit organization that seeks to protect the island’s natural resources, boost ecotourism and more. The disaster aid bill would codify and make permanent that arrangement.

The prior five-year extension of the $13.25 a gallon cover-over was estimated to cost $676 million, so a permanent repeal of the limitation could easily cost more than $1 billion over 10 years.

Similar standalone rum tax legislation has been introduced in both chambers, each predating the recent round of earthquakes. And the effort to make the higher cover-over amounts permanent has been around for years, practically since the provision was first enacted in 1999.

Given such history, some Republicans are questioning why the language should be part of an emergency spending bill.

“That’s a weird place to put it,” said Ways and Means member David Schweikert of Arizona. However, it’s “become more typical” in recent years to pile measures into must-pass bills as a partisan Congress has a harder and harder time passing noncritical legislation, he said.

“It’s not that the tradition of Christmas trees hasn’t been around forever,” Schweikert said, referring to must-pass bills that become the vehicles for sometimes scores of unrelated measures. “It’s that now we have ornaments being attached that we’ve never seen, or we haven’t seen in a very long time,” he said.

Democrats, though, say these added provisions fit well with other recovery measures such as the $3.26 billion in Community Development Block Grant funds, and $1.25 billion for road repairs.

“These provisions complement our emergency appropriations and help put Puerto Rico and the U.S. Virgin Islands on the path to long-term recovery,” said Evan Hollander, a spokesman for Lowey.

Rep. Mike Thompson, who chairs the Ways and Means Select Revenue Measures Subcommittee, said it was common practice to combine relief provisions for disaster-stricken areas into one bill.

“There’s a lot of disaster areas across the country,” the California Democrat said. “When we’re in disasters, our federal government needs to be there for the people that we represent. Straightforward stuff.”

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