Source: New York Times online
Author: Helene Cooper
Date: October 21, 2010
While President Obama was in San Francisco on Thursday he made time to meet Steve Jobs, the Chief Executive of Apple Computer, Inc. It was reported that they discussed the economy, education, innovation, and technology, but the details were scarce. It will be interesting to follow this and see if it is ever released what exactly was discussed. President Obama is reaching out to business for advice, which is good.
Sunday, October 24, 2010
Wednesday, October 20, 2010
BP $20 billion fund.....good or bad?
It seemed like a miracle that our President was able to convince BP toestablish a $20 billion escrow fund to compensate those hurt by the oil plume inthe Gulf of Mexico. After all, he had no constitutional power to forcethem 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 intoit during 2010.
2. BP is a British corporation, but has a very large operating entity inthe US . However, only about 30% of its income is derived from the US .
3. By Generally Accepted Accounting Principles (GAAP), BP must book theentire $20 billion expense in the year accrued. Therefore, they will book a $20billion 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 byall.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 mostinexperienced man in the room.
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 intoit during 2010.
2. BP is a British corporation, but has a very large operating entity inthe US . However, only about 30% of its income is derived from the US .
3. By Generally Accepted Accounting Principles (GAAP), BP must book theentire $20 billion expense in the year accrued. Therefore, they will book a $20billion 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 byall.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 mostinexperienced man in the room.
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