BP, which caused the biggest environmental catastrophe ever seen on U.S. shores, may be poised to receive the biggest tax break in American history as a result of it.
The British oil company already has claimed $10 billion in tax credits from the 2010 disaster, caused when its Deepwater Horizon drilling rig exploded and spewed millions of gallons of oil into the Gulf of Mexico.
Taxpayers could be asked to shoulder billions of dollars more under terms of a settlement currently being negotiated between BP and the federal government. Both sides have incentive to make a deal: The Department of Justice wants to avoid a lengthy court trial, and BP wants to get on with its life.
The total fine paid by BP could reach $21 billion or more – generating a nice headline for the Obama administration. But check the fine print. The settlement could include hidden subsidies that make the true amount substantially less.
Specifically, the agreement may shift more of the penalties into Natural Resource Damages assessments – which are tax deductible – and away from the Clean Water Act, which carries a tax rate of up to 35 percent.
The deal appeared to be on a fast track until an Oct. 1 report by the Press-Register that revealed its potential to shortchange victims of the spill. The agreement stalled after Gulf Coast political leaders expressed outrage over the report, but officials familiar with the negotiations say that talks are ongoing.
Both the Justice Department and BP declined to comment on any potential settlement.
The stakes are high for the Obama administration. A deal ahead of the Nov. 6 election could be a political windfall for the president, particularly in the battleground state of Florida. But the consequences of giving BP a massive tax break could also be severe.
“This should give President Obama pause,” said U.S. Sen. Richard Shelby, R-Tuscaloosa. “In light of the fact that he has bashed tax breaks for Big Oil on the campaign trail, he would have a lot of explaining to do if Big Oil got a huge tax break because his administration siphoned money from oil spill victims.”
Shelby and others said weighting the fines toward NRDA would give the federal government more control over how the money gets spent, since NRDA fines are routed to the U.S. Treasury. Clean Water fines, by contrast, would be routed to the Gulf states under Restore Act legislation signed by Obama in July.
That equals a win for the government and a win for BP. Financial experts said the deduction could be worth billions of dollars to the company.
“It’s hugely significant to BP to structure the settlement this way,” said Thomas Claps, a former trial attorney and legal analyst for New York-based Susquehanna Financial Group who has been closely following the BP negotiations.
The big loser? That would be the taxpayers along the Gulf Coast – the real victims of the catastrophe.
Alabama and Mississippi would get an extra kick in the pants. A settlement weighted toward NRDA would take hundreds of millions of dollars away from the two states and award it to Louisiana, which suffered the brunt of environmental damage from the spill.
Florida could also reap additional funds – but with a twist. A NRDA settlement could steer money away from the Panhandle, which suffered lost tourism business, and toward south Florida, where it could be used for restoration of the Everglades.
Alabama political leaders have vowed to fight any deal that would circumvent the Restore Act, which received rare bipartisan support in Congress.
“Obviously BP prefers to pay it under the fund that is tax deductible, and their lawyers are working to accomplish that,” said U.S. Sen. Jeff Sessions, R-Mobile. “We believe Congress dealt with how the money should go, and that is through the Restore Act.”
A leading government watchdog group said the Justice Department routinely gives corporations a free pass by allowing them to write off fines as a business expense. But that practice actually rewards bad behavior, according to the U.S. Public Interest Research Group.
“When businesses are allowed to shirk financial responsibility for their own wrongdoing, it weakens deterrence to bad behavior in the future,” said Ryan Pierannunzi, spokesman for the Washington, D.C.-based consumer advocacy group. “If BP takes the costs as a tax deduction, taxpayers end up making up for the lost revenue by paying more in taxes or seeing public services cut.”
Gulf Coast citizens, he said, lose twice because they suffered the consequences of BP’s wrongdoing and then have to pick up the tax tab.
U.S. Rep. Jo Bonner, R-Mobile, said the solution is simple: Don’t cave in to BP.
“All (Attorney General) Eric Holder has to do is take that option off the table,” Bonner said.
How a deal that bad ever got on the table is a question that should resonate on the Gulf Coast. It’s the equivalent of allowing bank robbers to deduct the cost of their getaway cars or counterfeiters to write off the cost of their ink.
Worse, it’s a slap in the face to the victims of BP’s criminal negligence.
“How can BP characterize the suffering of my brother’s family as a business expense — one that is entitled to millions of dollars in tax credits?” said Chris Jones, whose brother, Gordon Jones, was one of the 11 men killed on the Deepwater Horizon rig. “We shouldn’t pay for BP’s mistakes.”
George Talbot is state and national political reporter for AL.com. Contact him at 251-219-5623 or [email protected]