THE INTENT of paying oil spill claims quickly and fully has been to make Gulf Coast residents whole from last year’s disaster. But if those who receive payments are clobbered by the Internal Revenue Service as a result, then what’s the point?
Fortunately, U.S. Rep. Steven Palazzo, R-Biloxi, has introduced a bill to allow businesses and individuals to average claims income over three years for tax purposes. The goal is to keep the lump sum payments from pushing claimants into a higher tax bracket.
Rep. Palazzo makes a good point when he describes the tax liability associated with claims payments as “just another setback” for those who are trying to recover from the oil spill. Not only have claimants suffered as a result of the spill itself, but they also have faced a claims process beset by red tape and delay.
In many cases, claimants have already spent the money they received to get back on their feet after losing months of income because of the spill. Businesses lost customers, employees lost wages and investors lost rental income because of the perception — wrongly, it turned out — that the beaches were covered with oil.
The additional tax liability adds insult to injury.
Rep. Palazzo’s bill deserves the support of congressional delegations from across the Gulf Coast because it recognizes that claimants did not enjoy a windfall as a result of the oil spill. In fact, in many cases, the payments that many people received compensated them only partially for their losses.
If the bill is approved, claimants will be able to spread the sting of the taxable income over three years. This can provide much-needed relief, fueling the financial recovery of many people who have suffered through no fault of their own.
On a macro level, the bill can help coastal counties in Mississippi and Alabama bounce back more quickly because, for a little longer, it will keep dollars in the communities most affected by the disaster.
Rep. Palazzo deserves credit for acknowledging how contradictory it is for the federal government to facilitate claims while also taxing recipients in a punitive way. His bill can remedy this problem — and for this, coastal residents should be grateful.