Senators Joni Ernst and Chuck Grassley have long championed fiscal responsibility, fairness, and accountability. These principles are now critically needed to address two problematic policies—the Rum Cover-Over (RCO) program and the Section 5010 tax loophole—that collectively siphon hundreds of millions of dollars from taxpayers each year into the pockets of multinational corporations, often at the expense of public services and transparency.
Congress now has a chance at a pragmatic solution. Reforming the RCO program and repealing the Section 5010 loophole would restore integrity to alcohol taxation policy, prioritize communities, and eliminate unwarranted subsidies for global liquor giants. The Senators’ support for reforming these policies would reinforce their reputations as protectors of taxpayer dollars and champions for accountability.
At its core, the Rum Cover-Over program is intended to benefit Puerto Rico and the U.S. Virgin Islands by redirecting federal excise taxes on rum to these territories. In fiscal year 2023, this program returned $670 million back to the islands, funds theoretically earmarked for public services.
But the reality is far more complicated. Up to 30% of this money—an estimated $250 million annually—goes straight to large, foreign-based rum producers through opaque subsidies through corporate welfare. This lack of transparency makes it impossible to track how much of the money actually benefits territorial communities, creating a system that disproportionately rewards a small group of foreign companies over public need.
Congress should bring transparency and fairness to the RCO program by certifying the amount of money transferred to rum producers, capping subsidies at 5% of rum tax revenues received by each territory, and introducing a five-year sunset provision to phase out these subsidies entirely. These changes would redirect hundreds of millions of dollars back to essential programs that improve infrastructure, education, and healthcare for territorial residents.
Equally troubling is the Section 5010 tax loophole, a convoluted policy that allows distillers to game the system by blending high-potency wine and “non-beverage flavorings” into their liquor products. This reduces their effective tax rate from $8.10 per gallon to as low as $5.08, creating an uneven playing field and costing the federal government over $300 million annually.
The loophole doesn’t just cost taxpayers—it also deceives consumers. Under current rules, distillers are not required to disclose when up to half of their “liquor” consists of cheaper wine and flavorings rather than distilled spirits. This lack of labeling requirements undermines consumer trust and distorts the marketplace, giving multinational producers an undue competitive advantage.
Congress should also repeal the Section 5010 loophole, aligning tax rates with the true composition of alcoholic products and eliminating a lucrative advantage for foreign distillers. Closing this loophole would restore fairness in the liquor market while recapturing hundreds of millions of dollars for public use.
Iowa farmers and producers play by the rules to ensure their products are competitive in both domestic and global markets. Shouldn’t we expect the same from multinational corporations that benefit from U.S. tax policies? By supporting these reforms, Senators Ernst and Grassley can help end these unwarranted subsidies and redirect funds toward programs that strengthen communities and invest in America’s future.
It isn’t about penalizing any industry—it’s about tax fairness, transparency, and ensuring that tax dollars are used responsibly. Reforming the Rum Cover-Over program and closing the Section 5010 loophole represent straightforward steps to achieving these goals.
As stewards of fiscal discipline, our Senators have an opportunity to lead this effort, reaffirming their commitments to the principles that have defined their public service. Leading on these issues isn’t just the right choice for Iowa or for taxpayers—it’s the fair and accountable path forward.
Author: Gary Leffler
Gary Leffler is a Christian, conservative and community activist and leader who strongly believes in a MAGA philosophy. He was a candidate for Congress in 2022.
