For anyone who still thinks that BP should be taxed more over the destruction they directly caused in the Gulf of Mexico, this is a good story on how
it simply won't work.
BP is now being required to place $20 billion in an escrow account to pay for the clean-up and to compensate those who have been damaged by their
recklessness (translation: anyone living along the Gulf Coast). But when you do the books, it's not quite $20 billion. There is an offset:
NEW YORK -- BP likely will be able to deduct payments it has agreed to make to compensate those damaged by the oil spill in the Gulf of Mexico,
according to a tax expert.
In short, it would likely take an act of Congress to keep BP from deducting its payments, and while that can't
be ruled out, given the mood of Congress toward BP, it would seem to be difficult from a legal point of view since it would likely be viewed as
legislating ex post facto.
Of course, far be it from the government to simply give BP a tax exemption without making sure they have oit covered form another angle:
WASHINGTON – The Internal Revenue Service says oil spill victims who receive BP payments for lost wages will have to pay up come tax time.
Under current law, BP payments for lost wages are taxable — just like the wages would have been, the IRS said in tax guidance issued Friday.
Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress? Taxable, though medical expenses
related to the emotional distress are deductible.
So here's how it works, folks. BP is 'fined' $20 billion. The fine, however, is tax-exempt, meaning that if they had not been fined, they would not
have actually profited $20 billion more; they would have profited the $20 billion minus the taxes on it. So there is now $20 billion in the escrow
account, meaning BP is out, what? Maybe $14.4 billion (assuming 28% taxes)?
So the Federal government is actually out $5.6 billion that they could have gotten in taxes from BP. But instead of 'eating' that loss, they are
trying to minimize their losses as well, by levying taxes on the damages that those affected by BP are receiving. So, yeah, they might lose a little
since the tax rates are lower on individuals, but they still get something back.
The loser? The people who have lost everything. Sure, they're getting compensated... for now. The fisheries will not suddenly go back to the way they
were even when the oil is cleaned up. It will take years, possibly a generation before they can once again operate at full capacity. Is BP's escrow
going to last that long? I seriously doubt it. $20 billion sounds like a lot, but spread out amongst the millions of people who have lost their jobs,
their entire industry and livelihood, and will not be able to get that back for many years to come, that's just a drop in the bucket.
Of course, I will play my own Devil's Advocate here and say that under one train of thinking this would be appropriate: after all, the compensations
are to relieve the people's losses, meaning they will pay no more taxes than they would if the disaster had never happened. And since this escrow
cuts into BP's profits, why should they pay taxes on a cost of doing business?
The answer I give to such observations is that this is more than payment for a damage; one may put a price on how many shrimp one cannopt harvest, or
on how much this has affected their income in a tourism industry. But can one place a price tag on the scenic view of clear water steretching to the
horizon? Can one place a dollar amount on the loss of a thriving ecosystem? Can one quantify the financial position of the loss of a culture and a way
I say no. The damages should not be tax exempt for BP, and should be so for those receiving payments.
Such is not quite justice, but it is closer.