originally posted by Dirty Ernie in another thread ...
[quote]
This is true on the surface. However, looking 'under the hood' reveals lots of unintended consequences.
(snip)"it has not yet been established that BP is even to blame for the spill, and the law – which government wrote – limits its liability anyway to $75 million. That was the basis on which BP hunted for oil, and on which its owners invested their money. Now that it has voluntarily exceeded that limit by a factor of at least 267, who can ever trust its word again?
The word of the Company, that is. The word of government has long ago been recognized as worthless, for if it finds any of its laws inconvenient (like the one that taxes the income only of those made legally "liable" for it) it will simply ignore them and do what it wants. We know that. But BP is not government. Is it?
After a sleepless night worrying about all this, of which more below, I pulled up BP's Annual Report for 2009, to see if there's another way to look at this financial disaster.
Perhaps things may not be quite as bad as they seem. The Company made sales of $246 billion in that year, of which $25.1B was "profit before taxation" – that's 10.2%, not bad. Then taxation by the world's governments confiscated $8.4B of it, or 33%. That left net, after-tax profits for shareholders of $16.7 billion or 88 cents a share.
The Obamagrab means BP will cancel its remaining three 2010 dividend payments, and if 2010 is as good a year as 2009 (one source suggests it may not be) then three quarters of $16.7B is to be diverted from shareholders to the government's nominee. That's $12.5 billion.
However, to obtain that sum BP has to earn pre-tax profits of (12.5 / 0.67 =) $18.7 billion, and the $20B payment will presumably come out of pre-tax profits. Accordingly, if BP ends up paying $20B, it will be "only" (20 – 18.7 =) $1.3 billion out of pocket this year. Plus what it will spend on a new rig, overtime, cleanup, and so forth. But the total may be no more than around 1% of its sales or a tenth of its profits. Nasty, but not crippling.
What, meantime, will this plunder mean for Americans? – some 40% of BP's shares are held in this country, many of them on behalf of pensioners. So a few million seniors, dependent on hitherto reliable BP dividends, are going to run short this year; in effect, wealth will be transferred from them to younger, more active recipients on the Gulf Coast. I don't say that's wrong, mind; it's proper that owners of a company do the right thing by those it damages, but only to the extent that law or (far preferably) contract provides. Here, BP is having to buy favor in Washington by stiffing its owners. Like all Faustian bargains, the favor will be a phantom.
Government transfers are never fast, and always expensive – the bureau-rats administering them always manage to skim off a rich layer for themselves – so those idled fishermen and hoteliers may have to wait a while. Some of them are already complaining that BP is too slow, and now that the Feds have the job of making payments, they will find out what waiting really means. That will increase hostility to Washington, and so is no bad result. One other potentially good result is that scrutiny of applications for money is likely to be poor (what do b-rats know about meeting small-business payrolls?). This $20 billion could prove a bonanza for all manner of malingerers and spongers, so rather than complain, why not join them?"(snip)
from
Put another way, of the $20 billion in funds that BP will be paying into 'escrow', the actual after-tax cost to BP as a company will only be 1.3 billion. At a 33% effective tax rate, this will also mean that BP will NOT be paying something like $6 billion worth of corporate taxes due to the 'deductibility' of spill cleanup costs ... $6 billion that will therefore have to be made up for by other US taxpayers.
The balance will then come from 'non-payment' of dividend income to BP's shareholders ... some 40% of which are American - either individuals who were counting on that stable dividend income to fund present day retirement etc, or pension funds who were counting on that stable dividend income to fund future retirements. And ultimately US taxpayers may wind up picking up part of the tab on this as well ... either via increased social services costs as retirees exhaust their own resources more quickly, or via the gov't agency Pension Benefits Guarantee Corp being forced to make good on US pension fund losses.
~





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