BP Pays for the Spill but the Taxpayer Chips In

| About: BP p.l.c. (BP)

If the spill is stopped this month, the costs paid by BP will probably amount to $30 billion, according to Financial Times Energy Editor Bill Crooks. This will reduce taxes paid by BP, mostly to the U.S. and UK, by about $10 billion. This will likely be spread over four years and amount to a reduction of taxes paid per year to each country of up to $1 billion per year.

Thus, the taxpayers of the two countroes will essentially be on the hook for nearly $10 billion of the damages and clean up costs in the form of lost tax revenue.

Elsewhere in the Crooks article it states:

BP on Monday reiterated the possibility that by the end of the week its leaking Macondo well could be shut off, or all the oil could be captured, using the new cap now being fitted to the well head. The suggestion sent BP’s shares surging, closing 9.11 per cent higher in London, but the company still faces huge and uncertain liabilities, estimated by analysts at about $50bn.

If the tax deductable costs are higher, the taxpayers in the U.S. and UK will pay more for the disaster. At $50 billion in costs, the taxpayers bill is between $16 and $17 billion.

The tax burden on both countries will be similar in magnitude, but the U.S. annual tax revenues are much larger than the UK so the percentage impact on the UK would be greater. For the U.S., $1 billion per year is about 0.02% of the $5 to $6 trillion total U.S. tax revenue expected per year for 2010-13. UK, with about 20% of the revenue of the U.S. would be impacted by 0.1%.

These are small percentages, to be sure, but over four years every household in the U.S. will pay about $40 to $50 and in the UK $200 to $250.

Disclosure: No position.