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LIFO could need to be rescued

In accounting lingo, it’s simply known as LIFO, meaning last-in, first-out. It’s been in the tax code for many years but its days may now be numbered since it has surfaced during the ongoing budget and deficit fiasco in Washington.

LIFO is a tax strategy used by big and small businesses alike. It effectively reduces the taxable income by simply allowing the deduction of the most recent cost of goods from current sales. New goods added to inventories are usually more costly than older ones, so the result gives the appearance of lower earnings, the Wall Street Journal’s Angus Loten recently reported. Moreover, while not so big at this time of low inflation, it is a particularly beneficial deduction during periods of high inflation.

There has been little news coverage of LIFO because the focus is on so many other “bigger” proposals. But, it’s not insignificant. That’s why, in fact, the Obama administration has been proposing to cut LIFO out of the tax code since 2009. Doing so would raise more than $60 billion over 10 years because it effectively increases the taxes paid by manufacturers, distributors and retailers. “We think, on balance, it’s the right thing to do when we’re making tough choices about how we should achieve significant deficit reduction,” Jay Carney, White House press secretary, has told the news media.\

On the other side, there’s growing vocal opposition. Some 120 business organizations have joined the LIFO Coalition to crank up the defense. The coalition is marshalling forces to increase pressure on lawmakers to scrap the proposal.

NMMA president Thom Dammrich says: “We are opposing the elimination of LIFO accounting through our affiliation with the National Association of Manufacturers. Since the LIFO issue is not industry specific, NAM is in the lead on this and we will be signed on with the coalition whenever appropriate.”

For the MRAA, Washington lobbyist Larry Innis confirms the dealers’ group  is also following the issue and will likely call on its membership to become directly engaged in ramping up pressure on members of Congress to reject the White House proposal.
It’s not rocket science to see that losing LIFO will increase the cost of carrying inventories for dealers. Ideally, of course, dealers prefer to sell older inventory items first, before they lose value. But “ideally” is mostly a fantasy for marine dealers, and the FILO deduction directly helps a dealership stay in business and provide jobs!

Do you agree? If so, it may be worth your time to call, write or email your Congressional representatives telling them elimination of the LIFO deduction as proposed by the administration is a bad idea that will hurt your dealership and its employees.

Comments

One comment on “LIFO could need to be rescued

  1. Jim Coburn

    There is LIFO, FIFO and, of course, the “FISH” method of inventory accounting noted and experienced by many dealers and their bankers: First-In-Still-Here…
    Seriously, eliminating LIFO will surely have a negative cost effect on a number of dealers. Thanks for highlighting this, Norm.

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