October 3, 2008

Bailout Bill Includes Tax Break for Exxon Valdez Plaintiffs

You may have heard that the bailout bill that Congress passed today includes some "tax sweeteners." Some might call it "pork."

Among them is a provision that gives the class of commercial fisherman in the Exxon Valdez case a variety of tax breaks on their $500 million punitive damages award. The provision (section 504 of the 2008 Emergency Economic Stabilization Act) gives the plaintiffs the right to average out their punitive damages awards over three years rather than suffer a one-time tax hit. They are also permitted to make 401k or IRA contributions that exceed the normal limits. The San Francisco Chronicle reports that the provision is expected to cost the federal government about $49 million in lost revenue.

Various reports (like the Chronicle story linked above) say the provision was added to gain the vote of Rep. Don Young, R-Alaska. But the Anchorage Daily News reports that Young actually voted against the bailout bill, even with the earmark for the Exxon Valdez plaintiffs. Senator Lisa Murkowski, R-Alaska, who had previously sponsored a separate bill to provide a tax cut for Exxon Valdez plaintiffs, had this to say about the provision in the bailout bill:

While I was extremely disappointed in the Supreme Court's decision to reduce the punitive damage award to the victims of the Exxon Valdez oil spill, our provision will help lessen the tax burden and allow the 30,000 plaintiffs to keep more of the compensation they receive.
Technically, of course, punitive damages are not designed to provide "compensation," which is awarded separately through compensatory damages. The Exxon Valdez plaintiffs received over $500 million in compensatory damages long ago.