WASHINGTON ? An article in yesterday?s New York Times presented a detailed look at the effects that President Obama?s proposed LIFO accounting method repeal would play on the economy.
In the budget he submitted to Congress for fiscal year 2012, Obama called for the repeal of LIFO, describing it as an outdated change in the tax treatment of business inventories.
?[H]owever complex the details, the effects of the change would be substantial,? writes the Times, ?and in pushing for it Mr. Obama has kicked a hornet?s nest.?
The proposal would prohibit the last-in, first-out accounting technique (LIFO) that is used to determine the cost of goods sold and income earned by a company.
If Obama?s proposal becomes law, it would increase the tax liability for companies that have been using this method ? some for decades ? generating a projected $95 billion in revenue over 10 years. Especially hard hit by the repeal would be small businesses, manufacturers, wholesalers, retailers and oil companies.
Obama has emphasized the importance of creating manufacturing jobs, but manufacturers maintain repeal of LIFO would have the opposite effect.
?The president?s proposal would be devastating,? said C. William Jones, vice chairman of O?Neal Industries, a 90-year-old family owned metals company in Birmingham, Ala. ?It would increase our tax bill by tens of millions of dollars. Thousands of companies would be affected the same way.?
Charles W. Mulford, a professor of accounting at the Georgia Institute of Technology, said LIFO repeal looks like ?an easy source of revenue, but ?it taxes illusory income, phantom profits that result from inflation.?
?LIFO is not an accounting gimmick or a loophole,? Jones said. ?It?s been a readily accepted method of valuing inventory for decades.?
Others maintain the president?s proposal would undo tax benefits that companies have relied on by using the LIFO method of accounting.
?It?s a huge retroactive tax,? said Jade C. West, senior vice president of the National Association of Wholesaler-Distributors, who is leading the business coalition opposed to the change. ?The government would tell companies that they must go back and recalculate the tax savings they have claimed for decades.?
The Treasury Department has addressed this concern, saying that the tax could be paid over 10 years.
Oil companies would be impacted significantly by repeal of LIFO, said Stephen Comstock, manager of tax policy at the American Petroleum Institute, adding, ?[t]he current method of accounting is absolutely fair.?
NACS is opposed to repeal of the LIFO accounting method and is working with the Save LIFO coalition to block its repeal.
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