Thursday, April 21, 2011

Deepwater Deductions

The one-year anniversary of the Deepwater Horizon explosion, fire, and subsequent oil spill is being marked by the fact that we the taxpayers are ending up on the hook for the clean-up because BP will be able to write off some of the the losses on their taxes.

Under U.S. corporate law, companies can take credits on up to 35 percent of their losses. In this case, that means U.S. taxpayers are indirectly subsidizing at least part of cost for the cleanup and the $20 billion fund BP created to compensate people, fisherman and businesses along the Gulf Coast hurt by the spill.

BP may spread that $40.9 billion loss over 2010 and the next few years until all the payments are paid to the victims. Companies can only deduct the amount of losses paid out in any given year, and the trust fund likely will be paying victims for years to come.

That could end up cutting $13 billion from BP’s overall tax bill.

That’s also why BP was so quick to step up with their $20 billion compensation fund; it’s deductible.

To quote the immortal Archie Bunker: “It’s easy to be generous when it doesn’t cost ya nothin’.”