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By Victor R. Jury Jr., President and CEO
In the midst of the political wrangling now taking place in Congress about the budget deficit, businesses should beware of attempts to repeal LIFO – an accounting method based on recording inventory as “Last In, First Out.”
Using the LIFO method allows companies to more accurately measure financial performance, manage tax liability and avoid commodity price swings. Repealing it would, in essence, be a backdoor tax on every business that uses this accounting method, a method established in the 1930s.
In February and again in June, the Obama Administration included repealing LIFO in the president’s budget proposal and in legislation to raise the U.S. debt limit.
The danger to business of LIFO repeal is so imminent and critical that more than 120 trade associations have banded together to form the LIFO Coalition, including the National Association of Electrical Distributors, of which my company is a member.
It’s not clear exactly how much money the Washington Wise Ones think such a tactic might generate (one estimate was between $65 billion to $95 billion over 10 years). But it’s safe to say, it won’t make a dent in the runaway federal deficit we’re facing.
What is clear is that LIFO repeal will result in higher tax liabilities and associated costs. According to the Coalition: “Repealing LIFO would force companies currently using this method to report their LIFO reserves as income, resulting in a massive tax increase for large and small businesses across the country. Additionally, repealing LIFO would mean potentially higher future tax bills and would make it harder for companies to manage inflation.”
Sen. Jeff Bingaman, D-N.M., is one of the members of the influential Senate Finance Committee supporting LIFO repeal.
Senator − Repealing LIFO will not solve your spending problem in Washington. What it will do is create more problems for New Mexico businesses and put more jobs at risk. Can you, or your party, really afford that?