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Belmont Club

A rum transaction, if ever there was one

June 29th, 2009 - 5:34 am

Bloomberg describes an unlikely beneficiary of taxpayer TARP money: a British distillery. Diageo Plc. The story of how a British liquor company got paid $2.7 billion to build a distillery in the Virgin Islands is a convoluted one. Like most things in Washington, it had history. But before getting to that, here’s happened in a nutshell. The measure was stampeded through when panic over the financial crisis (=opportunity) was at its height. (Hat tip: Crooks and Liars)

June 26 (Bloomberg) — In June 2008, U.S. Virgin Islands Governor John deJongh Jr. agreed to give London-based Diageo Plc billions of dollars in tax incentives to move its production of Captain Morgan rum from one U.S. island — Puerto Rico — to another, namely St. Croix. DeJongh says he had no idea his deal would help make the world’s largest liquor distiller the most unlikely beneficiary of the emergency Troubled Asset Relief Program approved by Congress just four months later. …

“It’s kind of like the magician’s sleight of hand,” says former House Ways and Means Committee Chairman William Thomas, a California Republican who ran the committee from 2001 to 2007 and oversaw all tax legislation. “They snuck these things in a bill that was focused on other things.”

Congress inserted the tax benefits for companies other than banks in a fog of confusion and panic after the House of Representatives rejected the first attempt to fund the bank support effort urged by then President George W. Bush and Treasury Secretary Henry Paulson. …

“You had this remarkable brief period with no transparency, filled with backroom deals being made and an absolute blackout of information,” says Jim Lucier, a senior political analyst at Capital Alpha Partners LLC, a Washington firm that tracks legislation for hedge funds and institutional investors.

Referring to TARP tax breaks, he says, “It’s ridiculous and it’s a product of the legislative sausage-making machine.”

Now back to the history of the legislative sausage.

It began with the passage of what was advertised as a tax break. What nobody realized is that one of the provisions tacked on to the tax break extended a policy under which Diageo Plc stood to gain billions. “Baucus didn’t know until months later, Sullivan says, that one of those added provisions would steer about $2.7 billion to Diageo over the next three decades. That’s because Diageo wasn’t even mentioned in the bill and lawmakers didn’t realize they were ratifying deJongh’s deal by extending the underlying tax policy that made the agreement possible in the first place.” These kinds of shennanigans make one wonder what is actually inside the “energy reform bill” that House Minority Leader John Boehner, R-Ohio tried to filibuster when a 300 page amendment to it was introduced at 3 am.

Republicans have complained that no copies of the massive bill exist for members to read on the House floor, though the legislation is available online. “I really hate to do this, but when you file a 300 page amendment at 3:05 a.m. the American people have a right to know what is in the bill, they have a right to know what we are voting on.” Among the provisions Boehner reads from the bill, the creation of “green banking centers” that would have to provide information to people about how to build green homes and a government formula, or rating system, to measure how well builders adhere to environmentally friendly standards.

Well who cares what’s in it? The right question is what’s in it for who. Amazing how the addition of two words can change a sentence. But as in all things, the energy reform bill mysteries be clear eventually a day late and many dollars short. Then we can all move on and get along.

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