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At the top of every Google search for “BP oil spill” is a sponsored link from BP that trumpets how much it has done for Gulf residents since its Deepwater Horizon oil rig exploded in 2010, killing 11 workers and dumping over 200 million gallons of crude into the Gulf of Mexico.
Behind newspaper ads claiming “We will make this right,” the oil giant has shuttered its cleanup efforts when as many as one million barrels could remain unaccounted for.
Beneath a proclaimed commitment to restore the Gulf economy, the company has taken recent measures that discourage future claimants, such as threatening that money may need to be given back if they can win a related legal decision.
There seems to be a common pattern: loudly proclaiming big steps to make amends while quietly backing away from its commitments to the public.
The real harm here is not just false advertising.
Gulf residents can still see the non-glossed effects of the oil spill or feel its effects.
One of the most egregious wrongs that BP committed against the American people took place behind closed doors at the hands of its corporate lawyers.
Three years ago, when oil was still spurting into the Gulf and BP was touting the billions of dollars it set aside for claims and the cleanup, the oil giant was also preparing to deduct the price of the disaster as an “ordinary and necessary” cost of doing business.
BP managed to write off the cost of its $32 billion cleanup and collect a $10 billion federal tax windfall for the spill.
Yes, you read that correctly. BP took a $10 billion tax break for the Deepwater Horizon oil spill.
Deepwater Horizon wasn’t the first oil spill to be written off as a tax deduction, and it won’t be the last unless the rules change. When the Exxon Valdez tanker ran aground in 1989 and spilled 11 million gallons of oil into Alaska’s Prince William Sound, Exxon was fined $5 billion.
Less well-publicized was that Exxon argued the decision in court for the next 20 years until 2005 when the Supreme Court decreased the fine to $500 million. Exxon then took a $200 tax deduction. When all was said and done, Exxon ended up paying about $300 million for the spill.
If these oil companies had simply been fined for their spills they would not have been able to take these massive tax windfalls. Similarly, if normal citizens pay parking tickets or late fees at the library, we can’t deduct them from our taxes, even if we negotiate over the fine.
But when corporations negotiate violations of the law, they can take advantage of a special loophole. While federal law forbids companies from deducting public fines and penalties from their taxes, if their lawyers negotiate payments through a legal settlement, then they can typically write the payments off as a tax deduction unless the agency specifically forbids it.
This is a broader problem that also includes companies deducting settlements for misdeeds such as foreclosure and Medicare scams, dangerous pharmaceuticals, and consumer swindles.
When this happens, the public is triply harmed. First is the direct harm of the oil spill or other corporate misdeed. Second, government revenues are reduced by up to 35 percent of the settlement amount at the federal level, and additional amounts at the state level. For each dollar a company like BP writes off, the public must pick up the tab through cuts to public programs, additional taxes for ordinary citizens, or more government debt.
Thirdly, future deterrence of corporate wrongdoing is weakened, as perpetrators understand that the true sticker price for violating the public trust will be far less in the headlines.
Members of Congress have sometimes taken aim at the “settlement loophole” for oil spills.
A Texas representative introduced the Closing Oil Spill Tax Loopholes Act of 2010, and last year a Florida senator introduced the Oil Spill Tax Fairness Act — both of which would have disallowed tax deductions for costs related to oil spills.
Ultimately, however, a more comprehensive solution is necessary.
Congress should close the settlement loophole for more than just oil spills. Corporate harms do not merit a tax break. Congress should ensure that taxpayers are not forced to foot the bill for companies that rip them off or spill oil in their water.
The American people, at the very least, deserve some truth in advertising. Like agreements that Exxon and other corporations have made to settle allegations of criminal wrongdoing, BP’s “Commitment to the Gulf,” should not have hidden, tax deductible givebacks.
Links to the published Op-Ed:
NOTE FROM U.S. PIRG: You can read U.S. PIRG’s report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
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