An Oil Spill Helped One Billionaire Avoid Paying Income Tax for 14 Years
propublica.org
propublica.org
So I mean she did avoid paying income tax, but only by giving up $600 million dollars to the government (which flowed back to her personal taxes to offset any income).
I don't understand the relevance of your point.
When a cab is fined for speeding, he cannot claim it as a business expense. He put lives at risk and that is not a reasonable business decision. It should be the same for oil spills.
But guess what, tax codes are not written by taxi drivers...
> But such write-offs are legal, qualifying as “ordinary and necessary” business expenses. By contrast, fines and penalties are not deductible. Oil giant BP was able to deduct most of the settlement it reached with the government over the Deepwater Horizon spill because much of it went to address the environmental calamity, rather than to penalties for wrongdoing.
And the other points in the article are the trust that was set up and the expenses for cleaning up the spill were what was deducted on taxes but they seemingly did not actually do anything to clean it up.
> In 2012, the Coast Guard finally ordered Taylor to install a dome to contain the leak, but three years later, when Taylor Energy settled a lawsuit that forced it to start publicly disclosing more about its efforts, the company had not even finished the design.
I am not trying to claim that the situation is illegal, merely that it is immoral (thus the human part). Putting aside the laws and codes, paying to fix a situation that you created through negligence should not be a normal business expense IMHO.
I resent the idea that you can pay you way out of almost all situations unless the victim is richer than you.
The fines, afaik, are not tax deductible and are paid after calculating taxable income.
This is true for any business, but I don't get why oil gets singled out by people describing this type of accounting as oil companies getting a government subsidy. It just means expenses were higher, so net income and profit are lower, which is the amount you pay taxes on.
It's not that complicated.
Now if the government pays for part of the cleanup, and for some reason that amount is forgiven for whatever reason (maybe as part of a settlement), then that forgiven debt is considered taxable income.
It's standard businesses accounting, whether oil company or any other type of business.
> That’s in significant measure because she was able to transform money her company was compelled to spend cleaning up the oil spill into a perfectly legal nine-figure tax write-off for herself.
OP's post was essentially a re-wording of this quotation, and as such, doesn't make a case beyond I guess an implied "that's legal so it's good, or at least just the way it has to work".
That is the most interesting aspect of these articles. They are optimised for the title, not the content. Ignore the oil spill: if you lose $100m, you won't pay tax on that..."Billionaire pays no tax" is a better headline than "Billionaire loses lots of money". If you think that a wealth tax is a good idea, fine just say that...don't bother with the article. But the reason most journalists don't write about wealth taxes is because they lack the actual knowledge to understand why we don't have wealth taxes, they just write misleading bullshit about income taxes instead.
This isn't just splitting hairs either. There is enough real information on inequality in the US (this is something that most journalists are very clever about...this is an article about inequality because journalists know that the target audience will interpret it that way). You don't need the bullshit articles. These articles misinform the public, they don't need to be written.
- the mechanism for the tax write-off, by paying costs for cleanup rather than a fine
- how wealthy the players involved really are
- another mechanism for avoiding tax (transferal of property to a spouse on death avoids capital gains -- I'm not really interested in this one, but the article goes into it)
- yet another mechanism (possibly unilaterally inflating company valuation after the transferal, then selling "for a loss" that perhaps is illegitimate -- remember the damaged rig was not part of the sale)
- how sole-proprietership means the first write-off is a personal tax write-off too (I have no real objection to this)
- how the company has dragged its feet tremendously in actually doing the cleanup (ample detail in the article)
- how the estimate on the extent of the spill was perhaps 20 times too small (according to a government law suit)
- how the Coast Guard had to hire its own contractor to finally install the protective dome
The article definitely has some "look how wealthy these people are, they're not like us" aspects to it, especially in the first quarter or so, but the substance of it is about the triangulation of fire to "push for settlement with a trust for costs (tax write-off), push for that settlement to be based on an estimate that underestimates the true cost, push back on doing any of the actual work". (That being said, and maybe I missed it, but I don't think the article does a good job of explaining how that last part improves their bottom line -- do they get to recoup unspent funds from the trust?)
But I don't see how you're getting to (paraphrasing) "just say you want a wealth tax, instead of this misleading bullshit". Seems like a reasonably good article on "doing bad things and largely getting away with it".
And yes, your response is the kind of misconception that I think the journalists banked on.
Read that again but slowly and out loud.
Income is Revenue (any money you take in) minus Expenditure (any money you put out).
If you take in $100 and pay out $600, how much Income do you have?
> It may be surprising that the costs of cleaning up an environmental disaster are tax-deductible. But such write-offs are legal, qualifying as “ordinary and necessary” business expenses. By contrast, fines and penalties are not deductible. Oil giant BP was able to deduct most of the settlement it reached with the government over the Deepwater Horizon spill because much of it went to address the environmental calamity, rather than to penalties for wrongdoing.
You have offered no argument on one of the central questions at play, and are just condescendingly stating mechanisms that are already stated within the article, which crucially, also contains an actual argument and justification.
If you go spill a bunch of oil, you'll get a fine (a punishment) and you will have to do your best to fix the damage (as much as it can be fixed).
That cleanup is not a fine. It's distinct and separate. It is not the punishment.
Cleanup is also not a determinate amount. There is no inspector you can fly out who can eyeball the damage and give you any meaningful estimate. It's done when it is done and it costs what it costs.
That makes cleanup an expense, therefore diminishing income.
If you think the fines should be higher then that's great. You can totally charge them more fines, and they can't treat that punishment as an expense.
You can't however start weaponizing tax code against people you don't like. You can't use the cleanup as a second punishment.
The problem with treating such environmental cleanup as just another cost, is that it's just another cost. It may be economical to just do the damage, or at least to cut corners such that there's an "unreasonable" risk of doing the damage. After the fact, you can always push for low-ball cost estimates, try to cap your max payout to that level, push back on actually doing the work and paying out (though as I've said in another comment, the article does a poor job of explaining if that's really happening). It's a case where "it's easier to ask forgiveness" has huge problems.
I think tax write-offs should be for "legitimate costs of doing business". If the damage was foreseeable (which is not really dealt with in the article, except very obliquely below) and the company is not cooperative in cleanup, there's an argument that it should not be deemed a "legitimate cost of doing business", as to do so only encourages repeat events. It isn't second punishment.
> It took years for the extent of the spill to become known. Taylor disclosed almost nothing about the accident and fought public records requests. The reality unspooled thanks to the persistence of environmental groups, investigative reporting, and revelations from a dizzying array of suits and countersuits.
> According to a later review by the Coast Guard, Taylor Energy was “obstinate, difficult to deal with and verbally combative,” and preferred “to employ stall tactics over cooperation with an intention to confuse, delay or misdirect” the government.
Until we transition entirely off of oil, oil spills are a part of life. We can reduce them, we can limit the damage but we can't prevent them.
Yes, companies can be less than ideal at fixing spills. We have tools like auditors and other third parties as a control.
Tax write offs are for anything that costs you money as a business. Your accountant needs a chair and a laptop, your hairdresser has different needs like scissor sharpening. There is no standards body fit to determine what constitutes a "real business expense" outside of the IRS auditors who do so post-facto.
That the oil company wasn't cooperative might mean we should fine them more but doesn't affect their tax code.
Tax code is not moralistic.
In reality it was a negotiated settlement to avoid (I am assuming) criminal penalties. The point of the article was that it was only because of a loophole in the tax code that she was able to pass this settlement (a huge fine, basically) as an operating "loss".
Think about that for a second. Suppose you misfile your taxes (intentionally or otherwise), and get hit with a $20k fine by the IRS. Do you get to write that $20k off as a "loss"? In exchange for "giving" that $20k to the government?
You have a person with this basic trajectory:
Step 1 - Gets a $1 billion dollar asset, but claims it's worth $1.2 billion. No tax due, basis set at $1.2bn.
Step 2 - Sells asset for $1 billion, which is what it's worth. Says hey I just lost $200MM
Step 3 - Uses that loss to offset real gains from other businesses. Doesn't pay tax on anything at all
It's Step 1 that's the problem. For fucking insane reasons no tax at all is due at all in this step AND there's no unrealized capital gains transferred either, so the billion dollars of wealth created will never be taxed as having accrued to anyone ever AND there's an incentive to overvalue it since there's no tax due. In a normal world people don't pretend assets they get are worth more than the really are since that's a gain they'll have to pay taxes on.
This state of affairs is fundamentally indefensible. Even in our fucked up world of influence peddling I'm amazed the plutocrats were able to make this happen.
Because if there's a company (in this case a sole proprietorship) that reports business expenses exceeding income, what is there to tax?
Can some chime in to say what's the matter with tax write-offs portrayed as unfair gains? I mean, you still have to pay for the written-off stuff. As I understand, you're not better off just deciding to spend money on the basis of it being tax deductible. It'd make only sense if you're going to spend the money anyway.
But in this case her being able to avoid paying taxes isn't really because she did something destructive, it's because her business did badly. If gambled all her money on meme stocks or whatever, and lost, she would be able to claim the same deduction. The main issue here seems to be that valuations can be fudged to maximize tax savings, not that you can avoid taxes after causing an oil spill.
>It externalizes risks while keeping gains private.
but her company already paid fines for it?
But business deductions aren't really avoiding taxation. It's more accurately calculating your profits so the taxation can be calculated.
Because if there's a company (in this case a sole proprietorship) that reports business expenses exceeding income, what is there to tax?
If the company cannot afford to perform the cleanup it should be nationalized and sold off until the cleanup can be funded. I'm heavily in favor of this also applying to the Board and Investors in the company, there needs to be real consequences with being involved in world-destroying corporate fuckups. Ideally to the point that being on the Board of an Energy Company carries the very real consequence of flipping burgers for the rest of your days should the company you are supposed to be overseeing fucks up badly enough.
The objection is to the idea that one can somehow come out ahead while also fucking the world up for everyone else. The objection is to the complete and total lack of Consequences for Actions.
or maybe that's already baked into the fine? In other words
fine for a bad: $1000
average tax rate: 30%
new fine ("from post-tax profits"): $1300
alternatively, the "real" price of the fine: $769.23
An alternative is to go out of business and leave the total cleanup costs to society instead of paid for out of future profits.
Which is better?
>If the company cannot afford to perform the cleanup it should be nationalized and sold off until the cleanup can be funded.
That mindset adds SuperFund sites - destroy the actor without being able to extract profits over longer periods of time.
>Ideally to the point that being on the Board of an Energy Company carries the very real consequence of flipping burgers for the rest of your days
And as you drive the risk so high capital will flee the sector, we'll ultimately have higher energy costs and worse technology as places that don't view the world so black and white use a nuanced approach. Then when energy is too costly for the poor, we can screw em or nationalize more things to help them, right?
Seems this recipe has been tried places...
I know I'm reading between the lines here a bit, but it seems like that would've been better in this case.
"In 2012, the Coast Guard finally ordered Taylor to install a dome to contain the leak, but three years later, when Taylor Energy settled a lawsuit that forced it to start publicly disclosing more about its efforts, the company had not even finished the design... protective dome, finally installed by a contractor the Coast Guard hired after losing faith in Taylor, contains the leak."
The expenditure ended up being from the Coast Guard hiring another contractor anyways to stop the oil leak. Part of the complaints here are that this trust was set up for the explicit purpose of stopping the oil leak but didn't seem to actually do anything about it. This is less a question of the tax code part of the conversation but more of fraud of whether those business expenses of the trust were actually going towards the oil spill.
There is a price for everything, including human lives. Lose a limb? Eye? There’s a price for it all, even a oil spill.
Whether it’s enough is an entirely different conversation.
What a convenient way to shut down a valid argument. The whole thrust is that the incentives are encouraging negative externalities by legalizing them and providing tax breaks for polluting. I don't like it, and it should be called out - more people need to be aware that these things keep happening because it's benefitting some rich knob.
Pretty sure that's the exact point that people are lamenting.
Laws come and go. It’s not hard to think of things that seem blatantly wrong now, that were formerly legal. Do we describe those that wanted the law changes that have since occurred as ‘virtue signalling’?
Making money by pouring oil into the environment seems pretty clearly wrong.
I’d argue that the behaviour of the protagonists in the article is virtue signalling, they are seemingly doing good things for their community while actually damaging the place.
If you inherit something without paying a tax in the gain in value, fine. But being able to declare your basis in it at the newly gained value allow taxes on its eventual sale to skip a massive gain in value. That is the sketchiest aspect IMHO.
Also, “they” is not accurate. I suspect you already realize that lawmakers and the population governed by their laws have very different incentives and outcomes.
If they put half the effort into investigating topics hidden in the shadows, i bet they would find Ghislaine-level revelations that would really make society better off.
Instead they choose -like with this article- to coat the morality of accounting (in this case, expenses) behind some kind of nefarious activity, when in reality accounting rules are amoral because they are the same for everyone.
But saying "the activity was inmoral, spilling oil is horrible, and the fine was too small!! " is not clickbaity enough it seems.
When is the last time you avoided 600M in taxes on your personal income, due to business “expenses” (fines)?