A Florida member of congress wrote an article regarding LIFO that appeared in the Column of online news network Context Florida on January 25th, 2016. Read the full article below:
As the son and grandson of small business owners, I understand how hard it can be to achieve success for the company on which a family’s hopes and dreams rest.
It is a daily struggle, made all the harder in recent years by over-regulation, a deep recession, and a complicated, burdensome tax code.
Congress should not make things worse by adding LIFO repeal to the list of challenges facing business owners and the employees, suppliers and families they support. Although a seemingly small change in accounting policy, a LIFO ban would have a disproportionately large impact on the very companies now putting Floridians back to work.
LIFO stands for “last in, first out.” It is a common accounting method for businesses to value their inventories for tax purposes. It helps to ensure cash flow when the cost of goods and materials are increasing.
For example, when it’s crunch time LIFO makes it easier to both meet payroll and restock merchandise and materials. The elimination of LIFO would do just the opposite, exposing small companies to greater risk of cash shortfalls and associated impacts — such as interest expense on loans, non-payment, defaults, and in some cases bankruptcy — because money would have to go to the Federal government in higher taxes instead of back into the business.
These consequences alone would be sufficient to oppose a LIFO repeal, but the potential damage goes much deeper. Should Congress eliminate LIFO, small businesses will have to buy and install new inventory accounting systems — again, more money going toward the tax system.
Worse yet, the repeal of LIFO would affect completely legal, fully paid Federal tax filings going back years, even decades — for as long as the business has been on the LIFO method.
Businesses in Florida and across the country would be hit with an unfair, retroactive tax bill on inventory computations they thought were finalized long ago; a tax that could cripple their operations.
The cumulative effect will be to drain millions upon millions of dollars from Florida’s business community and send them directly to the IRS. As our economy continues to teeter, the damage could contribute to yet another economic downturn, the last thing Americans need after a hard-fought battle to get back on our feet. Kept in the hands of the companies that built them, these funds could otherwise be spent hiring workers and strengthening our still fragile economy instead of getting lost in our nation’s budget quagmire.
Why are we even talking about such a nonsensical idea? President Barack Obama and many other politicians in Washington have targeted the LIFO accounting method to pay for tax reform. They claim lower corporate tax rates will offset any disadvantage from forcing companies to switch accounting methods. But they are wrong. Many in congress agree.
No realistic decrease in the corporate tax rate could compensate for the potential costs of making businesses pay taxes based on income earned decades ago. And, very importantly, most Florida employers are partnerships, sole proprietorships and S corporations, taxed at the individual level. They would not benefit from lower corporate tax rates anyway. Instead, they would be stuck with the tab of paying higher taxes to give big corporations a tax break.
We must trust in our conservative ideals. The tax code is in desperate need of change. But pro-growth, pro-business reforms must benefit our small, homegrown American companies as much as they do multinational corporations. Eliminating LIFO does not achieve this objective.
Florida suffered longer than many others during the downturn, but we’ve put that behind us and are now among the nation’s leaders in growth. We do so with greater wisdom, however, and realize we cannot take our economy for granted. We should not gamble our recovery on ill-conceived ideas like repealing LIFO. We should ask Congress to oppose any proposal to repeal LIFO if and when it arises.
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Column courtesy of Context Florida.
Bob Richardson
Senior IPIC Tax Accountant
LIFO-PRO, Inc.