Big Bad Corporations Get to Rip and Run on Settlements and Taxes

Ideas and Issues
BP Oil Spill 2010 REUTERS/U.S. Coast Guard/Handout/Files

Little Rock   When we read the headlines on the big settlements wrung from corporate baddies for egregious conduct like banks stealing peoples’ homes, plants polluting entire city water systems, or oil companies negligently polluting something as immense as the Gulf of Mexico, we see that they are paying billions and billions of dollars to make amends, and we take the bait, nod our heads, and, say to ourselves at least that’s some justice. Reading a report recently issued by the US-Public Interest Research Group called “Settling for a Lack of Accountability,” and talking to one of the co-authors, Michelle Surka, on the radio quickly takes the bloom off of that rosy view.

Why? Simply put, the top-line figure on a settlement is often overshadowing the bottom line for the corporation when many of the evildoers are being allowed to write off huge amounts of what we were hoping was restitution on their taxes as business expenses. The report makes clear that fines and penalties assessed by the various government agencies, according to the US tax code, cannot be claimed as business expenses. Hold the applause! But, things like modifying mortgages, restitution for lost business paid by British Petroleum in the Gulf spill, and other steps to make victims of such evil doing a little bit more whole, that’s just business for these outfits, and therefore, it’s a tax write-off.

Not to hit everyone with too blunt a weapon, because the PIRG report at least softens the blows a bit, but make no mistake a tax write-off of billions by these boys means that essentially that you and me as taxpayers are funding their restitution efforts. That hurts, and the numbers are big. More than $5 billion of the $20 odd billion from BP for the Gulf disaster was written off. PIRG lists as one of its findings:

For the ten largest settlements an­nounced by these major agencies dur­ing the three year period, companies were required to pay nearly $80 billion to resolve federal charges of wrongdo­ing, but companies can readily write off at least $48 billion of this amount as a tax deduction.

They found this figure by just looking at the settlements in recent years from the EPA, Justice, SEC, and a couple of other agencies. Michelle and the PIRG report made it clear that some agencies are better than others at specifically requiring in dollars and cents what part of their settlements cannot be treated as tax deductions. Some are bad at even making the terms of the settlements public, and that’s outrageous. She made the point in our interview that the government should begin negotiations with theses miscreants by saying that none of the settlement should be tax deductible, rather than bargaining with themselves. Excellent point!

The most painful and inescapable irony as noted in the report and by just plain common sense is that as these businesses sign the settlements and send it to their tax accountants they are essentially confessing, as they fill out their tax forms, that this kind of criminal behavior is part of the heart and soul of their business model. If these settlements are valid, deductible business expenses, how are these outfits not criminal enterprises?