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If BP qualifies for $10 billion cleanup tax break, should it get one?

BP says it will seek a $9.9 billion tax write-off based on the $32 billion it expects to spend on Gulf oil spill cleanup and recovery. One US senator is already calling for hearings to prevent it.

By Staff writer / August 6, 2010

Oil cleanup workers clean up tar balls on Pensacola Beach, Fla., Sunday. BP says it will seek a $10 billion tax write-off for its Gulf oil spill cleanup and recovery efforts

Dave Martin/AP



As the Gulf oil spill disaster wanes, attention has turned to the White House's ability to hold BP to its promise of "making the Gulf whole again."

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Nearly two months after President Obama told the American people that BP would pay all cleanup costs, at least one US Senator is questioning whether the oil giant should receive a $9.9 billion tax break based on the $32 billion it expects to spend cleaning up after the Deepwater Horizon disaster.

The oil giant announced last week its intention to seek the tax break after agreeing to a deal with President Obama on June 16 to establish a $20 billion escrow account to pay financial damages related to the spill. So far, however, no money has been added to the fund amid ongoing negotiations between BP and the Department of Justice.

"The [$20 billion deal] was a moment in which [Obama] was perceived to have moved from a spectator to the one in charge, the boot on the neck idea – it was very, very important," says Bruce Buchanan, a political science professor at the University of Texas, at Austin. The tax write-off issue and the unresolved escrow deal, however, "does bring the American people back into the game," he adds.

Indeed, the $20 billion escrow account was seen as a coup for Obama and the American people, essentially guaranteeing compensation through a third-party administrator, 9/11 Trust Fund manager Kenneth Feinberg, a Washington lawyer. It also benefits BP by minimizing its liability exposure and, in turn, setting a more solid foundation for the company's rebound.

Analysts say it's also critical for the government to allow BP to keep enough cash flow to stay solvent, since a bankrupt company won't ultimately benefit aggrieved parties. BP has already lost billions of dollars in value as a result of the spill.

But the $9.9 billion proposed write-off still raised the ire of Sen. Bill Nelson (D) of Florida, who wants Senate hearings should BP go through with the write-off.

"I was appalled upon learning that BP intends to shift nearly $10 billion of the costs related to the Gulf oil spill to the backs of American taxpayers, including the very taxpayers whose lives have been devastated by the spill," Mr. Nelson wrote in a recent letter to the Senate Finance Committee, which writes tax law.

In his letter, Nelson pointed to other corporations, including Boeing and Goldman Sachs, which both decided recently against writing off a combined $1 billion of major liabilities from legal settlements. Critically, Goldman Sachs and Boeing negotiated those decisions with the SEC and lawmakers.