Friday, July 23, 2010

BP, The Government, and Accounting 101

Another great article sent to me by a friend that I thought was worthy of sharing.  Enjoy!

It seems like a miracle that our leader was able to convince BP to establish a $20 billion escrow fund to compensate those hurt by the ongoing oil plume in the Gulf of Mexico.

After all, he had no constitutional power to force them to do so.

Let us take a closer look at the effect on BP’s2010 finances:

1. BP will establish a $20 billion fund, but will pay only $7 billion into it during 2010.

2. BP is a British corporation, but has a very large operating entity in the US.

3. By Generally Accepted Accounting Principles (GAAP), BP must book the entire $20 billion expense this year, i.e., year the liability is incurred. Therefore, they will book a $20 billion expense in 2010, reducing their US tax liability by $7 billion.

4. Our anointed leader also convinced this massive corporation to show their concern for the “small people” by withholding dividends to their shareholders for the last 3 quarters of 2010. This reduces their outward cash flow by about $7.5 billion, including approximately 40% of that amount to US citizens. Assuming that
the Bush tax cuts will survive through the end of 2010, the US Treasury will lose another $450 million in taxes on that amount. We won’t even discuss the effect on the US economy of 40% of $7.5 Billion or $3 Billion in cash that will not go to US citizens this year.

Let us put the results into a table easily understood by the "small" people:

BP Cash Flow:

* Escrow funding ($7 billion)

* Dividend saving $7.5 billion

* Tax savings $7 billion

* Net favorable cash flow for 2010 to BP : $7.5 billion

US Treasury Tax Receipts/Reductions:

* BP Corporate income tax (-$7 billion)

* BP US Shareholders (-$0.45 billion)

* Net unfavorable tax receipts ($7.45 billion)

US Citizens pocketbooks in cash flow:

* Lost Dividends $3 billion

* Tax savings $0.45 billion

* Net unfavorable cash flow of $2.55 billion That could have helped the economy.

I guess we really should expect this. After all, our anointed leader is the most inexperienced man in any room he enters.


BP Corporate Bean Counters:  1

Washington Tax Smart Guys:  0

American People - We Get BP (Bean Poop)

This isn't so hard to understand - BP made their largest political contributions to Obama's campaign. Obama plays politics acting tough on BP. We pay.

Frankly, I admire BP for their deal making ability. They must have brought their accountants to the table. After all, BP is not a fly by night operation and Obama thought he and his minimal business experience tax people and accountants could take on BP.

Once again, Obama, and therefore we Americans, got played!

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