Thursday, September 23, 2010

Obama vs BP - Who Was The Smartest Man In The Room?

Received this email today and thought I would post it. I had received it a while back and ever since, it has nagged at me. Because of the complexity of our tax laws, it takes someone knowledgeable in the room to keep from getting suckered. Either Obama got suckered, or he negotiated one of those back room Chicago style deals. Either way, we the taxpayers took one on the chin.

It seemed like a miracle that our President was able to convince BP to establish a $20 billion escrow fund to compensate those hurt by the oil plume in the Gulf of Mexico . After all, he had no constitutional power to force them to do so; so had to resort to Chicago-style negotiating.

Ever wonder why BP made the concession so quickly?

Take a closer look at the effect on BP's finances for the answer:

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 . However, only about 30% of its income is derived from the US.

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

4. The President 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. If the Bush tax cuts survive through 2010, the US Treasury will lose another $450 million in taxes on that amount. No need to even discuss the effect on the US economy.

Now, let's summarize the results into bullet points easily understood by all.

BP Cash Flow:

o Escrow funding ($7 billion)

o Dividend saving $7.5 billion

o Tax savings $7 billion

o Net favorable cash flow: $7.5 billion

US Treasury Tax Receipts:

o from BP Corporate income tax .... minus $7.5 billion

o from BP Shareholders' income tax ..... minus $0.45 billion

o Net loss of US dividend income tax receipts ..... minus $3.0 billion

o Total tax receipts loss: $10.95 billion. A huge hit!

Many feared this would happen. After all, our President was the most inexperienced man in the room.

Did he "Kick Ass", or did he get "Sucker Punched"? Or, is this another 'backroom deal' Obama negotiated which will ultimately get him a huge financial 'plum'? Should Obama be negotiating anything dealing with money and finances at all?

Bottom line: The $20 Billion BP is putting up will create a $7.5 Billion positive cash flow for BP this year and a $10.95 billion loss to our Treasury.

But, Obama actually thinks he really did something special and "kicked ass'.

In reality, BP executives are laughing at him and kicked his ass. He is in over his head when he starts dealing with savvy business people.

No comments:

Post a Comment