HARRISBURG, Pa. (WHTM) – BP’s oil rig explosion killed 11 people and spilled millions of gallons of oil. Big banks like JP Morgan Chase played a major role in the recent financial crisis in the United States. On a different but still important level, nursing home company Reliant Senior Care in Pennsylvania is accused of neglecting residents and letting them sit in their own filth.
Government agencies made all those organizations pay up in settlements. Tax law experts say those came with perks.
“It sits really wrong knowing that the entity that caused it can turn around and get some tax benefit out of that,” said Michael Hussey, Associate Dean for Academic Affairs and tax law professor at Widener University Commonwealth Law School.
In other words, it sounds like a lot of a corporation forks over $10 billion in a settlement. However, that same corporation could get $4 billion back from tax write-offs.
That money comes from taxpayers, whether it’s more national debt, cuts to government programs, or higher taxes.
“I know there are people at home watching this going, ‘That doesn’t sound very fair,'” abc27 reporter Amanda St. Hilaire said after Hussey explained how the system works.
“And many people have made the argument that it’s not fair,” Hussey replied.
There’s also an argument that the practice is not safe because it could make harmful actions more affordable. The government could try and negotiate a higher settlement according to the anticipated tax benefit, but that leaves a lot to judge, jury, and chance.
Tax experts say the law allows write-offs in some cases, but not others.
“If I’m a delivery person and I get pulled over for speeding, and I get a ticket and have to pay a hundred dollar fine, I’m not able to deduct that as a cost of my doing business,” Hussey said. “That’s a penalty that I’ve paid to the government.”
However, settlements are not always classified as penalties, and there is an argument that it should stay that way.
“BP is in business to make money,” Hussey said as he explained the other side, “And occasionally there will be some natural disaster like this, some loss of life that came with this particularly situation, and it’s just an expense of doing business and all expenses of doing business should be deductible.”
“That’s a hard pull for a lot of people to swallow, that it would be just the cost of doing business,” St. Hilaire replied.
“It is,” Hussey said, “but that would be the argument in favor of it, that if we want them to continue to do business and to make money and to provide products and services that we should allow them to do it as they have always done.”
There’s also the argument that victims benefit from the tax write-offs because corporations are then willing to write bigger checks. Either way, tax experts call for more transparency.
“If people know that these are going to be public and they’re going to be reviewed, they’ll make sure – I think – that they’re very thorough in what they do and they’re precise about what they do,” Hussey said.
“I think the more people understand how they’re taxed, and how that money is raised and what it’s spent for only helps the discussion about what we want to spend our tax money on,” he added.