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Taxpayers footing half the cost of BP's $20B damage claim fund?
Old 07-27-2010, 01:48 PM   #1
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Taxpayers footing half the cost of BP's $20B damage claim fund?

Once again, your tax dollars at work:
Quote:
[BP] has agreed to put $20 billion in an escrow account to pay claims for oil-spill damages. But half of that may now come out of government coffers...
BP taking $10 billion tax credit from spill - MarketWatch
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Old 07-27-2010, 02:07 PM   #2
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ReWahoo, say it isn't so...

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Old 07-27-2010, 02:15 PM   #3
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Well, yes, but that's how tax works. BP's loss means that it has less profits to pay in tax. Unless the US government decides to tax companies on sales revenue, say, rather than profits, that's the way it's going to be. (That's not something I'd advocate, I'm just saying.)

BP will be writing a lot of large cheques to cover the cost of the damage, of course, and the amount of those cheques will not be calculated by adding up a lot of register receipts from Wal-Mart. Maybe they will pay $28 billion or $32 billion or whatever, based on writedowns, hyperbole, spin, and general horse trading. That's going to be essentially an arbitrary number, and so is the amount they pay in tax (and if we're going to get started on corporate tax, let's have a look at the multi-billions dollar corporations who pay next to nothing).

Bottom line: nothing to see here. Of course, we could get into a discussion about the cost of the Afghanistan or Iraq operations, but I'm sure we don't want that.
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Old 07-27-2010, 02:17 PM   #4
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I'm no accountant, but isn't this just business as usual? They are incurring a cost to clean up a mess created by their operations. I don't think the $20 billion in escrow is a government fine (which would not be tax deductible). It is to pay damage claims from injured parties. A cost of doing business. The government, out of the kindness of their hearts, has offered to help coordinate the pay out of the $20 billion.

BP sure as heck pays their fair share of taxes on regular operating profits. I see no reason why they shouldn't be entitled to deduct their expenses.

I'm also curious whether this is a "credit" or a deduction of expenses. I guess they are carrying back the expense to offset previous (record) profits (something natural person taxpayers can't generally do), and as a result getting a big refund?
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Old 07-27-2010, 02:19 PM   #5
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Well, yes, but that's how tax works. BP's loss means that it has less profits to pay in tax. Unless the US government decides to tax companies on sales revenue, say, rather than profits, that's the way it's going to be. (That's not something I'd advocate, I'm just saying.)
I think you are missing a key element: The article discusses a tax "credit", not a tax "reduction" due to declining profits. Big difference, at least in my view.
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Old 07-27-2010, 02:40 PM   #6
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I think you are missing a key element: The article discusses a tax "credit", not a tax "reduction" due to declining profits. Big difference, at least in my view.

I would not put to much faith that the reporter got it right... why would they be getting a credit? What is the name of the credit?

It does make sense that they have a loss... and that loss can be carried back... and that carry back results in a refund of $10 billion... and that $10 billion is mistakenly called a credit...

Or, someone said 'we are getting a credit on our taxes paid'... like you would say if you had a store refund a purchase...
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Old 07-27-2010, 04:59 PM   #7
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Hmmm, have BP put actual cash in escrow with the govt to help pay for their damage, or have them pay more tax to the U.S. govt to help pay for their damage.

I think I can speculate which approach will ensure more money goes to paying for their damage.
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Old 07-27-2010, 05:05 PM   #8
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I think you are missing a key element: The article discusses a tax "credit", not a tax "reduction" due to declining profits. Big difference, at least in my view.
It will be interesting to see how this turns out. The words "credit" and "deduction" are both used in the article and, like Texas Proud, I have little confidence that the author or the folks he's quoting are likely to be getting it right.

Personally it seems that if BP is expensing the costs of capping the well, cleaning up the mess and compensating victims, I don't see the problem. But, whatever the IRS rules are today should determine how this comes down. Having the gov't customize/change/create and back-date laws, even if I think the victim deserves that sort of treatment, doesn't seem right.
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Old 07-30-2010, 03:54 PM   #9
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My bet is that the author (and editors) wouldn't know a credit from a debit from a deduction. This is probably a normal tax expense adjustment based on the accrual for cost of clean up and damages. The accrual was approximately 32 billion. Corporate tax rates run around 35% IIRC so the $10B credit fits the math. The fact that it is one-half of the amount of money to go into escrow is somewhat of a coincidence.
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Old 07-30-2010, 04:54 PM   #10
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Then there is the matter of the resource extraction fee per barrel (what they pay for what comes out of the well even if they can't use it) and the pollution fee for those same barrels both of which are paid to the Fed. I doubt if that is factored in either.

No doubt their profits this year, and for the next couple years, will be little if anything - which will impact the taxes they pay.
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Old 07-30-2010, 05:12 PM   #11
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My bet is that the author (and editors) wouldn't know a credit from a debit from a deduction. This is probably a normal tax expense adjustment based on the accrual for cost of clean up and damages. The accrual was approximately 32 billion. Corporate tax rates run around 35% IIRC so the $10B credit fits the math. The fact that it is one-half of the amount of money to go into escrow is somewhat of a coincidence.
That's what I'm guessing. A $9.9 billion drop in taxes paid sounds about right for a $32 billion loss.
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Old 07-30-2010, 05:26 PM   #12
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Then there is the matter of the resource extraction fee per barrel (what they pay for what comes out of the well even if they can't use it) and the pollution fee for those same barrels both of which are paid to the Fed. I doubt if that is factored in either.

No doubt their profits this year, and for the next couple years, will be little if anything - which will impact the taxes they pay.

Their income in future years should not be impacted by the spill costs... they are supposed to book all estimated future costs now...

This does not take into effect if people just don't buy their product.... but we have seen that Exxon did not take a sales hit back when....
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Old 07-30-2010, 05:45 PM   #13
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I think you are missing a key element: The article discusses a tax "credit", not a tax "reduction" due to declining profits. Big difference, at least in my view.

Quote:
But at least one Democratic lawmaker, U.S. Rep. James Oberstar of Minnesota, chairman of the committee on transportation and infrastructure, is appalled. "BP's decision to claim a nearly $10 billion tax credit stemming from costs it incurred during the oil spill cleanup is nothing short of reprehensible," he said in a statement.
I'd be willing to bet what is really going on is this a

32 billion clean up cost x 35% corporate tax rate = ~10 billion in reduction in taxes owed. The congressman either is ignorant about the differences between credits and deductions or is savvy and knows that corporate tax credits will generate more angry than a deduction.

Next you add a reporter who is also either stupid or manipulative and viola we get the $10 billion headline.

Sorry nothing to see here. In some cases fines and criminal penalties, like bribes aren't deductible but can't really argue that clean up the mess in the Gulf isn't a legitimate cost of business for BP?
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Old 07-31-2010, 11:47 AM   #14
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The congressman either is ignorant
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Old 07-31-2010, 01:28 PM   #15
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It is actually quite shocking how ignorant they are about basic taxes. We aren't talking about anything really esoteric here.
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Old 07-31-2010, 03:14 PM   #16
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It is actually quite shocking how ignorant they are about basic taxes. We aren't talking about anything really esoteric here.
Agreed, but it's even worse than that. These are not just any people who are ignorant of how taxes work, they are the ones that write the tax rules!


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... U.S. Rep. James Oberstar of Minnesota, chairman ... is appalled. "BP's decision to claim a nearly $10 billion tax credit .... is nothing short of reprehensible," he said in a statement.
Rep Oberstar - you are a member of the group that wrote the laws that says they can do this. Why not be appalled at your fellow lawmakers, and call their actions reprehensible? You sir (Oberstar), are an idiot acting idiotically (or think we are idiots).

It's like when I hear people blame lobbyists for something w/o blaming Congress - like the lobbyists can do anything w/o Congress going along with it?

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