The Tax Foundation, the nation’s leading independent tax policy research organization, conducted a survey that collected information regarding the economic and budgetary impact of LIFO Repeal in the United States. The full article can be found here: Tax Foundation LIFO Repeal Study
Key points from the study included the following:
- Elimination of Last-in, First-out accounting for write-offs of future inventory would reduce GDP by $11.6 billion per year and end up reducing federal revenue by $518 million each year.
- Unless a special provision were made, LIFO repeal would also retroactively tax a company’s “LIFO reserve.” This additional tax could hit cash-strapped companies particularly hard and could result in 50,300 additional job losses in the short run.
- Repealing Last-in, First-out accounting moves the tax code further from neutrality and raises the cost of capital.
See Table 3. below for a summary of The Tax Foundation’s Study:
| Table 3. Long-Term Effects of LIFO Repeal on Federal Revenue and GDP | |
| GDP | -$11.66 Billion |
| Annual Federal Revenue (Static) | $1.82 Billion |
| Federal Revenue (Dynamic) | -$518 Million |
| Capital Stock | -$53.3 Billion |
| Full-Time Jobs | -7,700 |
| Source: Tax Foundation Taxes and Growth Model, October 2015. | |
The conclusion of The Tax Foundation’s publication was as follows:
The U.S. tax code currently allows businesses to choose the method by which they account for inventories. Repealing Last-in, First-out accounting moves the tax code further from neutrality and raises the cost of capital. As a result, it would reduce long-run GDP and jobs. LIFO repeal would fly in the face of one of the goals of tax reform, which is to allow businesses to fully and immediately expense any investments it makes, including inventories. Lawmakers who want to raise revenue in order to lower marginal tax rates should be careful not to distort and exaggerate taxable income in the process, and should focus on more efficient sources of revenue.