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June 13, 2022

Coalition Outlines Importance Of Preserving LIFO In Letter To Congressional Staff

As Connecting the Dots reported in May, two scholars at the Urban/Brooking Tax Policy Center argued recent increases in oil prices and inflation have boosted tax benefits from the “last-in, first-out” (LIFO) inventory accounting method. They argued LIFO “exaggerates” deductions and understates income and tax liability relative to average cost inventory accounting and said repealing LIFO would raise about $1 billion annually while reducing tax subsidies for fossil fuels.

While MSCI’s partners at the LIFO Coalition see no imminent threat from federal lawmakers to end LIFO, the group did send a letter to U.S. House and Senate tax-writing staff explaining the Tax Policy Center scholars’ errors.

After addressing the scholars’ claims one-by-one, the letter concluded, “The Tax Policy Center article authors assert that the current inflationary economy argues for repeal of LIFO. In fact, the opposite is true. The post-COVID recovery, supply chain disruptions, reduced profit margins, and increased labor costs all contribute to the current economic challenges. If LIFO were repealed, companies would have to find ways to absorb those additional tax costs, and in many cases would have no choice but to try to pass those costs on through higher prices to their customers.”

Again, while the Tax Policy Center article is unlikely to prompt congressional action, there are several newer tax staffers on Capitol Hill who are not familiar with LIFO. This letter will educate them about LIFO and help them understand why it is important to businesses in several sectors of the economy, including industrial metals companies.

Read more about LIFO and why it must be preserved here.

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