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July 7th, 2011

Obama Should Take LIFO Repeal Off The Table

By Will Rogers

In his recent visit to our state, President Obama toured Alcoa, one of the world’s largest manufacturers of aluminum, located in Davenport, Iowa.  As a part of his visit, President Obama praised the manufacturing sector of the economy and touted the strong growth of private sector jobs over the last 15-months of his administration.  President Obama also mentioned in his speech that not only had Alcoa rehired laid-off workers, but that it was anticipating the need to add new employees to its workforce.

I am delighted that the President recognizes the positive impact private sector manufacturers are having on the economy, but what he failed to mention as a part of his visit was that he is advocating for repeal of the Last-In, First-Out accounting method, which would devastate businesses in our country, cost workers their jobs, and hurt our recovering economy.

The Last-In, First-Out accounting method, better know as LIFO, is a textbook accounting method that has been used by businesses for over 70 years.  LIFO allows businesses to manage inventories in a way that helps protect assets from the costs associated with inflation.  As a part of this method, businesses may incur a tax liability that has been held over from one year to the next, which is called a LIFO reserve.

President Obama proposes that the LIFO reserve should be eliminated and that businesses should pay a retroactive tax on this liability.  Estimates put the amount the federal government would stand to collect from repealing LIFO at between $50-100 billion dollars.

President Obama says that he is only trying to end a tax break for oil companies and billionaires, so he can reduce deficit spending.  And, while I applaud his, and other, noble efforts to reduce deficit spending and lower our national debt, repealing LIFO is precisely the wrong way to go about it.

The President and so many others who are advocating for the repeal of LIFO don’t seem to understand that this one time shot of revenue would have a chilling effect on the recovering U.S. economy and devastate businesses that use LIFO, many of which are manufacturers and wholesalers.

President Obama is correct that many of the largest U.S. oil and energy companies use LIFO.  But so do many of our largest manufacturers and wholesalers, such as Archer Daniels Midland, Caterpillar, U.S. Steel, Nucor, Wal-Mart, and Dupont.  Alcoa, the same company that President Obama praised during his visit to Iowa, has the 10th largest LIFO reserve in the country.

And many Iowa businesses would be hurt by LIFO repeal.  John Deere, Meredith Publishing, Sukup Manufacturing, and Winnebago Industries, all use LIFO.  So do farm equipment dealers, automobile dealers, grocery stores, and many other main street businesses.

A repeal of LIFO would have a huge impact on jobs as well.  Employers would have to scramble to pay retroactive taxes and would be forced to lay off workers, cut health care benefits, stop contributions to 401(k) plans, and cancel planned hiring.

President Obama should take LIFO repeal off the table as part of his deficit reduction talks with Congress.  And, if he won’t, Congress should refuse to pursue LIFO repeal as a part of the negotiations process for the sake of our country.

 

 

Will Rogers is the Director of Government Affairs for the Iowa-Nebraska Equipment Dealers Association and Past Co-Chair of the Polk County Republican Party.

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