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.